Parents saving for their children in junior cash ISAs have missed out on up to £13.5bn in potential returns over the past decade, a new study has found.

Research by Scottish Friendly and the Centre for Economics and Business Research revealed that parents who saved into a cash version of the tax-free savings account have lost out on up to £32,300 each since they were launched in 2011.

The findings show that junior cash ISA holders who maxed out their annual ISA allowance every year since 2011 would have built up a pot worth £52,200 after depositing a total of £44,800. However, an individual who maximised their Junior ISA allowance with investments into the MSCI World Index, via a stocks and shares JISA, would have accrued a total of £84,500 – a figure £32,300 higher.

Since 2011, the MSCI World Index, a global equity tracker, has returned on average 6.5% a year when fees are taken into account. This is more than four times the 1.53% average annual return of cash junior ISAs over the same 10-year period.

Although cash junior ISAs rates have been higher than adult cash ISAs over the last decade, rates across the board have remained low since the financial crisis in 2007.

However, Scottish Friendly added that despite the potential for higher returns on the stock market, cash junior ISAs remain a “far more popular option” among parents.

Figures show the number of account holders with a junior cash ISA has increased every year since they were first introduced, reaching 706,000 in 2019/2020. By comparison, the number of stocks and shares JISA holders in 2019/2020 was just 317,000.

“For many parents, saving for their children’s future is a major priority and giving them a helping hand as they start out in adult life is a big responsibility,” commented Scottish Friendly head of marketing, Jill Mackay. “Everyone wants the best for their child when it comes to building a nest egg so it’s understandable that many of us are tempted by a more cautious approach.

“However, if you’re putting money away for a child for up to 18 years, then it could make sense to consider investing as historically stocks and shares have proven to perform better than cash over the long-term, albeit this is not guaranteed.

“Plus, investing isn’t just for the wealthy and well advised, it’s possible to invest from as little as £10 month. By investing even small amounts you could ultimately build a brighter start for your child.”

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