As of 6 April, the amount you can put into a Junior ISA (JISA) per annum has increased to £9,000 – quite a jump from the previous allowance of £4,368.

The tax savings this provides make it an effective way to build a nest egg for your children. Whether you want to help with a gap year, university fees, or enabling them to get a foot on the property ladder.

Which type of Junior ISA?

You can put the money into either a cash JISA or a stocks and shares one.

Even in these low-interest rate days, the cash ones can attract quite generous rates, with some as high as 3.6%. Another advantage is that they don’t have the volatility associated with the stock market, a particular issue at the current time.

Yet, while the majority of Junior ISA’s tend to be in cash, experts state that this can be a wasted opportunity.

Despite the recent turmoil, the stock market will usually outperform cash savings over the long term.

Wealth manager Jason Hollands calculates that if you achieved a 6 per cent annual return – which he describes as ‘quite modest’ – a JISA with £9,000 invested in it each year would be worth more than £290,000 after 18 years.

As you can see, once compound interest kicks in, it can have a considerable effect.

He estimates that even JISAs with smaller monthly investments of £50 or £100 would accumulate pots of £19,367 or £38,735, respectively.

So, if you want to use the JISA investment to help your child complete a degree course or buy a property, cash is not the most effective long-term investment option.

It’s also advisable to invest a regular amount monthly rather than just put in lump sums at specific times.

This avoids worrying about whether it’s the right time to invest and smooths out the peaks and troughs in share prices.

Read about the best ways to save for your children.

Read Moneyhelpers guide to Junior ISA’s

Inheritance Tax Implications

Parents or guardians are the only ones who can open a JISA, but grandparents can contribute to the account.

This can be a productive way of using up their annual gift allowance.

They need to bear in mind the Inheritance Tax rules, though, especially now that the JISA allowance has increased. The annual gift allowance on an Inheritance Tax-free basis is £3,000 per donor (with one year’s allowance carried forward). I

Inheritance Tax would be charged on anything over this limit in the seven years before their death. Gifts of up to £250 per person can be given during the tax year as long as another exemption has not been used on the same person.

Once your child turns 18, the JISA becomes theirs.

They can either access it directly or transfer it into an adult ISA. This encourages them to develop a lifelong interest in money and helps them develop excellent investment discipline. In fact, the Government’s decision to increase the JISA allowance was part of its aim to create a generation of savers.

The new JISA allowance could mean that your child comes of age on a much sounder financial footing.