The cost of cash Junior ISAs: what 'safe' can cost over 18 years

A cash Junior ISA feels safe. The money sits in an account, earns interest, and the balance never goes down. For money you'll need soon, that's exactly what you want.

Over 18 years, though, safety has a cost that's easy to miss: the growth the money might have had if it were invested. This post shows how that gap builds up, why time changes the picture, and when cash is still the right choice.

Quick summary: for £200 a month from birth, cash at 3% a year could reach about £57,000 by 18, and investments at 6% a year about £76,500. The gap, around £19,500, comes from time and compounding, not luck.

These figures use 3% a year for cash and 6% for investments. They're illustrations: cash rates change, investments go up and down, and nothing is guaranteed.

Try your own numbers with our Junior ISA calculator.

The numbers over 18 years

£200 a month from birth

The same £43,200 goes in. The difference is what happens to it along the way.

Starting later: £200 a month from age 10

• Cash at 3%: about £21,700
• Invested at 6%: about £24,500
• Difference: about £2,800

With fewer years, the gap is much smaller. That's the point: time is what makes the difference.

Why the gap grows

It isn't just 6% against 3%. It's growth building on growth, year after year.

£200 a month, year by year

In the first year, the gap is tiny. By year 18, it's large, because the growth itself has been growing.

Risk looks different over time

Over a year or two, investments are riskier

Over short periods, investments can fall a lot:

• In early 2020, as COVID spread, global shares fell by about a third in a few weeks
• In the 2008 financial crisis, shares fell by around 40% or more
• In 2022, many markets fell by around 20%

If you need the money in two years and markets fall, that hurts. Cash protects you from that.

Over many years, cash has its own risk

In the past, markets have recovered from their falls, though not always quickly:

• The 2020 fall was recovered within months
• After 2008, it took several years
• After 2022, around a year or two, depending on the market

Past recoveries don't guarantee future ones. But over long periods, a spread of shares around the world has usually grown more than cash.

Rising prices

Cash has another quiet risk: rising prices.

Example:

• A child's cash Junior ISA reaches £50,000 after 18 years
• Prices have risen by 2.5% a year along the way
• That £50,000 now buys roughly what £32,000 bought when you started

Cash protects against the value falling. It doesn't protect against prices rising faster than the interest.

When cash makes sense

Cash Junior ISAs are the right choice in some situations.

1. A short time frame

Example: your child is 15, and the money will be needed at 18 for something specific.

With three years to go, a fall could come just when the money is needed. Cash removes that risk.

2. You'd find the ups and downs really hard

Example: seeing £10,000 fall to £8,500, even for a while, would keep you up at night, and you might sell.

Selling after a fall turns a temporary drop into a real loss. If you think you would, cash may genuinely suit you better.

3. It's part of a bigger plan

Some families keep part of their child's savings in cash alongside investments, for peace of mind.

When investing may suit you better

1. Ten years or more to go

If your child is young, there's time for the ups and downs to even out.

2. The money won't be needed exactly at 18

A Junior ISA becomes an adult ISA at 18. If your child is likely to leave some of it invested, the real time frame is even longer than it looks.

3. You'd like the best chance of growth

Over long periods, investments have historically grown more. That isn't guaranteed, but the difference over 18 years can be substantial.

Our stocks and shares vs cash comparison goes into this in more detail.

Different amounts, different time frames

£100 a month

£300 a month

What stands out: over five years, the difference is small, which is why cash suits short time frames. Over 18 years, it grows much larger.

Two illustrations

These are made-up families to show how the numbers work, not real people or real returns.

A family who chose cash

• Open a cash Junior ISA when their daughter is born
• Pay in £150 a month for 18 years (£32,400 in total)
• At 3% a year, it could reach about £42,800

If they'd invested instead, at 6% a year: about £57,400, around £14,600 more.

£42,800 is a very good start for any 18-year-old. The point isn't that cash was wrong, just that it has a cost.

A family who invested

• Open a stocks and shares Junior ISA when their son is born
• Pay in £250 a month
• A few years in, markets fall and the balance drops by a quarter
• They leave it alone and keep paying in

Falls like that are part of investing. Staying invested and carrying on paying in, buying while prices are lower, is what gives the long-term growth a chance to happen.

Common worries

"What if there's a crash just before my child turns 18?"

A real concern. Families deal with it in a few ways:

1. Gradually move towards cash in the last two or three years
2. Remember the Junior ISA becomes an adult ISA: your child doesn't have to take the money out at 18
3. Accept that the earlier years of growth usually leave a cushion

"I couldn't bear to watch it fall 20%."

That's worth taking seriously. Ask yourself whether you'd prefer a bumpier ride with more expected growth, or a smooth one with less. If it's the smooth one, cash is a reasonable choice. Just go in knowing the likely cost.

"My friend's stocks and shares Junior ISA lost money last year."

Short-term falls are normal. Zoom out:

• Over 1 year, shares can fall 20% or more
• Over 5 years, they can still be down
• Over 10 years or more, a spread of shares around the world has usually grown, but not always, and there's no guarantee

"What if this time is different?"

It could be. Nobody can promise that markets will recover the way they have before. What history does show is that a wide spread of companies, held for a long time, has been one of the more reliable ways to grow money faster than prices rise.

A mix of both

Some families split their payments, since a child can have one cash and one stocks and shares Junior ISA at once (within the £9,000 total):

• Most into stocks and shares, for growth
• Some into cash, for peace of mind

Example: £300 a month

• £225 a month invested at 6%: about £86,100 at 18
• £75 a month in cash at 3%: about £21,400 at 18
• Total: about £107,500

That's less than investing it all (about £114,800) but more than all cash (about £85,700), with a steadier part.

A mix is a perfectly sensible choice. It's a trade between growth and comfort, and only you can decide where that balance sits.

Key points

• Over 18 years, the gap between cash and investing can be large: about £19,500 on £200 a month, at 3% and 6%
• Over 5 years, it's small, which is why cash suits short time frames
• Time is what changes the picture: growth builds on growth
• Cash protects against falls, but not against rising prices
• Nothing is guaranteed: investments go down as well as up
• A mix of both is a reasonable middle way

What to do now

If you have a cash Junior ISA:

1. Work out how many years there are until your child turns 18, and whether the money will be needed then
2. If there are 10 years or more, it may be worth looking at stocks and shares
3. Try some numbers in our Junior ISA calculator
4. You can transfer a cash Junior ISA to a stocks and shares one; the new provider arranges it
5. See our providers guide for where to go

If you're opening a new Junior ISA:

1. Think about how long the money can stay put
2. For young children, many families choose stocks and shares
3. For older teenagers who'll need the money at 18, cash may suit better
4. Read our guide to opening a Junior ISA
5. Consider simple, low-cost index funds

The decision is yours. Cash isn't wrong. Just go in knowing what the extra steadiness is likely to cost over the years you've got.

Related guides:

• Stocks and shares or cash Junior ISA
• Best index funds for Junior ISAs
• Common Junior ISA mistakes
• Teaching kids about compound interest

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This article is for education only and isn't financial advice. The value of investments can go down as well as up, and past performance doesn't guarantee future returns.