Junior ISAs are savings accounts for children under the age of 18. They are tax-free and work in a similar way to our Adult Cash ISAs.
If you already have a Child Trust Fund then you would be unable to obtain one of these for your child. Babies born on or after November 1, 2011 are not able to open child trust funds but they can open a Junior ISA.
Junior ISAs protect any returns on your child’s savings from tax. The government gives them special tax-free status to encourage people to save for the future, so that they might be less reliant on the state.
Child Trust Funds are continuing for those who have them and you are still able to invest in these. The government is considering how they can bring the two together now that Junior ISAs have been launched to allow people to be sure they are getting the best deals for their children’s money.
When Will Your Child Get The Money?
Any money that has been invested into the Junior ISA will be locked away until your child reaches the age of 18. On reaching 18 the ISA will become a full adult ISA and will therefore adjust to the adult limits.
To find out more about these terms of adult ISAs and other savings products that will become available, visit Money Super Market for guides on the products available and how much you can invest.
How Much Can You Invest?
The current annual contribution limit for the Junior Isas is £3,600 and this limit will apply until the April 5, 2013. There are no government contributions to be made to junior ISAs; however, anyone can contribute to your child’s Junior ISA.
What Types Of Junior ISAs Are There?
Like the normal adult ISAs, the yearly allowance can be used to invest or save. However with the junior ISA you can choose how much of the total allowance you put in each account, for example, you could put the full amount into a Junior Cash ISA but that would then mean that you can’t then invest any of the allowance.
The choices of junior ISAs are limited but they are flexible. You are normally able to change from cash to shares without too much of a problem, as this is a new product the choices are limited.
The junior cash ISA is basically a tax-free savings vehicle and your money is safe provided you are within the terms of the Financial Services Compensation Scheme.
The Junior Stocks and Shares Isa have the money invested in equity based products such as shares and bonds. The value of the ISA can go up or down accordingly, so be prepared for this and only invest as much as you are happy to.
With this type of ISA, you may want to split the money you invest between the two types so you can lower the risk.
If you decide to take the risk then it’s better to invest while the child is still young as the stock market tends to give a greater return over time than saving alone. There are no guarantees for this though, so there’s no right or wrong answer.
It’s also worth bearing in mind that any children born before September 2002, and are not yet 18, who were excluded from the Child Trust Funds may be eligible for the Junior Isas.