Parents should be using ISAs to save for their children’s future rather than cash, according to mutual society OneFamily.
By opting to save cash at home or use a cash savings account people are missing out on “high levels” of investment and will see their final balance reduced by inflation rates and poor interest.
OneFamily carried out research with 2,018 parents and grandparents and found only 10% were using a stock and share Junior ISA to save money.
A Junior Individual Savings Account (ISA) allows parents to put money aside for their children at a lower tax rate.
Children can’t touch the money until they turn 18 and when they do the final amount will be income and capital-gains tax free.
This tax year (6 April 2017 -6 April 2018) the limit for investment is £4,128. Junior ISAs allow customers to steadily invest over a long period of time by saving a minimum of £10 a month.
OneFamily says over every 18 year period in the last 50 years, stocks and shares have made more money than cash accounts
On average, the study found parents and grandparents save £100 a month. Seven in ten admit they are worried about their children’s financial future.
OneFamily said if a family had invested £2,000 in a Junior ISA three years ago, they would now have £2,505 in their account, compared to £2,082 for those who opened a children’s bank account.
Steve Ferrari, managing director of Junior ISAs at OneFamily, said: “There are plenty of ways to save for your children but if parents are looking for good, long-term returns then they should consider a stocks and shares Junior ISA.
“OneFamily Junior ISAs have seen growth of 25% over the last three years so parents have benefited from strong returns on their savings.
"Even at 5% annual growth a parent saving £100 a month for 18 years could expect £29,183, when their child reaches 18, of which £7,583 would be investment returns.
“This would potentially cover university fees or the money could be used to be put towards a first home.
"The sooner parents can start saving for their children the better, even if they just put a little away often, as it will soon start to add up.”