Junior ISAs are tax free savings accounts for children under age 18. They allow you to save up to £4,128 for this tax year 2017/18– which runs from each 6 April to the following 5 April – for your child.
Junior ISAs replace child trust funds, which the government no longer provides.
Junior ISAs were introduced in November 2011 and are available to children born after January 2011 and children born before September 2002, who were excluded from child trust funds.
When the government introduced Junior ISAs, it was estimated that six million under 18s will be eligible to join, and although the government does not put any money into it, it gives parents the opportunity to secure their child’s financial future.
Children born between 1 September 2002 and 2 January 2011 are not allowed to have a junior ISA as they have child trust funds.
Once the money is saved into a Junior ISA, the money becomes your child’s and it is locked until your child’s 18th birthday.
If you are thinking about opening a junior ISA for your child, there are two types for you to consider – a cash junior ISA or a stocks and shares junior ISA.
It’s not all about saving for your kids – when you can, parents should save too.
If you are in a position to put away something every month, then you should.
How and where you save would depend on your circumstances. First, if you have any debts, try paying these off first. You maybe accumulating extremely high interest charges on credits card bills for example, which you should take the opportunity to reduce first.
If then, you are able to put money aside each month, then ISAs are a great starting point.
The government currently allows you to put away £20,000 into ISAs tax free.
Children’s Bank Accounts
One of the easiest ways to save is through a high street bank account. Unlike junior ISAs or child trust funds, you are not committing to locking money away for your child until they are 18.
Although interest rates are currently very poor, some children’s accounts offer attractive interest rates, but these vary depending on just how much access you will want to the money and how often.
MMM has researched the market and the table below lists some of best options that offer some of the highest interest rates on the high street available to you.
Adult Bank Accounts
High street bank savings accounts are the simplest and easiest way to save for many – and although the return on your money is far from great, it beats putting your hard earned cash under the mattress.
If you want just a simple bank account, then shop around because interest rates vary.
Interest rates are low and so it’s important that you try and make the most what’s around – you don’t have to be stuck in an account that pays less than 1% interest.
The best rates are not always found on the high street and some supermarkets now offer attractive propositions as well as online providers.
Bonus interest rates are normally paid after the first 12 months, after which you just get the basic rate without the bonus – so, if you do open an account with a bonus rate, start shopping around after it has expired.
Child Trust Funds
Child trust funds (CTFs) are savings accounts for children born between 1 September 2002 and 2 January 2011.
CTFs came with a huge incentive – a cash voucher of up to £250 – from the the government for each child.
Although the government no longer does this, thousands of people in the UK will have active CTFs and if you are one of them, it is important to keep up to date with your account to ensure you are maximising the investment opportunities.
The money you put in into a CTF becomes your child’s and it will be theirs to do as they please when they reach age 18.
Anyone can pay into your child’s CTF, including grandparents, aunties and uncles and so on.
Newborn children can no longer get a CTF, but they can get a junior ISA – although this does not come with the free cash voucher.
Currently, those that have a CTF are unable to have a junior ISA and it is not possible to transfer your CTF to a junior ISA. However, the government has said these rule will be relaxed next year, but we await finer details.
In the meantime,you should continue saving into you CTF as normal.
Bonds are essentially IOUs – you give a company, bank or government your money for a set period and you will get it back with a pre-determined interest rate once the agreed period of investment ends.
There are number of ways you can save in bonds. Check out MMM’s guide below on how you can invest in bonds.
National savings & Investments – premium bonds
Premium bonds, provided by National Savings & Investments (NS&I), do not pay interest, but every month there’s a chance to win a £1 million jackpot, plus other cash prizes.
Premium bonds is one of the most popular bonds with savers, with almost half of UK savers putting their money into them.
NS&I is backed by the government, so your money is pretty safe here.
The minimum investment is £100 and the maximum is £30,000. The prizes are tax-free, which you can re-invest if you want. The winners are selected by a random prize draw.
According to NS&I, the odds per £1 unit of winning are 24,000 to 1. There are no penalties if you decide to withdraw the cash.
Anyone over age 16 can buy premium bond. They can also be bought as a gift for children, but you have to nominate a parent of guardian to look after them – no one else can take charge of them, regardless of who buys them.
If you do decide to take out a premium bond, make sure you check the NS&I website regularly to see the list of winners – a shocking £39 million worth of prizes are currently unclaimed.
There is no time limit by which you must claim your prize.
Premium bonds cannot be passed on, so use them or cash them in – do not forget about them.
Click here if you are interested in applying for some premium bonds.