Compounding case study - £20 a month really help your grandchild buy a house?

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By the Personal Investing Team

09 Sep 2018

The arrival of one’s first grandchild is a truly special occasion. 

But sometimes alongside the joy of welcoming a new family member into the world come parental financial worries over how to meet the day-to-day costs of raising a newborn child. And as if that’s not enough, our Bank of Mum and Dad research shows that many parents will also want to find ways to help their children get on the property ladder.

Grandparents, too, are often keen to help out. With my first grandchild just approaching his first birthday, I was left thinking recently about how I could use the amazing long-term power of compounding to help him build the foundations of his future house today.

Taking my grandchild as an example, what would happen if we invested just £20 a month on his behalf for him in a Junior ISA from his first birthday until his 30th – the current average age of a first time buyer in the UK?

Assuming an annual rate of return of 5%, this relatively modest investment would yield a considerable tax-free lump sum of over £15,000. A huge help for anyone looking to buy a house and just a whisker away from the average BoMaD contribution in 2018.

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Please note this example is purely illustrative. The value of investments and any income from them can fall as well as rise, and may not perform predictably. Please also bear in mind the effects of inflation on your investment.

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Risk warning

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest . Tax rules for ISAs may change in the future and their tax advantages depend on your individual circumstances.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.