Monzo Launches Junior Stocks and Shares ISA With Family Gifting Link

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Monzo has introduced a junior stocks and shares Isa, allowing parents and legal guardians to invest for a child while friends and relatives contribute through a gifting link.

The digital bank is not charging a platform fee for its junior Isa (Jisa), making it a particularly low-cost option for building savings for a child’s future.

However, investors will still pay the underlying fund management charges. These should be checked carefully, as less obvious costs can reduce the overall investment returns.

Monzo’s launch comes less than a week after another new Jisa entered the market. On Monday, rival bank Oaknorth announced a cash Jisa paying interest of 3.5 per cent.

But because junior Isas are designed for long-term saving, parents may want to consider investing through a stocks and shares Jisa, such as Monzo’s, instead of choosing a cash account.

Under junior Isa rules, only a parent or legal guardian can open the account. The money then remains locked away until the child reaches the age of 18.

> Read more: How to choose the right platform for your stocks and shares Isa  

Is it worth opening a stocks and shares Jisa?

Parents who already bank with Monzo can open a Jisa directly in the app and manage it alongside their other accounts.

Each child has an annual junior Isa allowance of up to £9,000. This is separate from the £20,000 allowance available to adults.

That is a substantial allowance, and contributing the maximum each year could give a child a sizeable nest egg by their 18th birthday.

A Jisa opened at birth would give the money 18 years to grow before the child could access it. With such a long investment horizon, families may wish to consider investing through a Jisa rather than leaving the money entirely in cash.

Investing does involve risk, and the value of the account can rise and fall with movements in the stock market. Experts generally recommend investing for at least five years, giving the portfolio more time to withstand market peaks and troughs.

Over longer periods, investments have a greater chance of outpacing inflation — the rate at which prices increase — than cash savings.

How does Monzo’s stocks and shares Jisa compare? 

Monzo’s decision not to charge a platform fee on its junior stocks and shares Isa is a notable advantage.

By comparison, its adult investment accounts carry a standard annual charge of 0.25 per cent of the investment value, capped at £250.

Several other investment platforms also reduce charges for children’s accounts. Hargreaves Lansdown* does not charge account or dealing fees on a Jisa.

The newer platform Freetrade* also allows customers to open a Jisa without account or dealing fees.

Overall, Monzo’s junior stocks and shares Isa appears more cost-effective than the equivalent account offered by close rival Moneybox.

Both platforms are generally aimed at novice investors, with a selection of ready-made and curated funds designed to make it easier for someone to get started.

Moneybox charges account fees of 0.15 per cent if you choose one of its three ready-made funds, with a minimum subscription fee of £1 a month for investments of less than £5,000.

If you don’t use Moneybox’s own investments, account fees jump to 0.45 per cent.

> Read more: Best junior Isa cash rates and investment platforms to consider 

How much are the underlying investments?

Even though Monzo doesn’t charge account fees for its Jisa, there are underlying investment management costs taken directly out of the value of the fund – you don’t pay them yourself.

When these fees are high, they compound so that the value of the pot could end up being significantly lower than if you went with a lower cost investment. 

These aren’t levied by Monzo and are instead charged by the investment manager handling the fund.

In the case of Monzo’s ready-made funds – adventurous, balanced and careful – this is BlackRock and the ongoing fees are 0.14 per cent.

These fees also compare well against Moneybox. Its ready-made funds are managed by Amundi and ongoing fees are 0.29 per cent.

Investing for yourself but don’t know where to start?

It’s great that Monzo’s junior Isa is very low cost, but the account fees on adult accounts are relatively high.

You can invest without paying account fees at do-it-yourself platforms including Freetrade*, InvestEngine* and Trading 212*.

Read our guide on how to start investing to get going – from picking investments that suit your goals and attitude to risk to the best platforms for beginners.