Junior ISAs are tax-free savings accounts for children under age 18. You can save £4,128, tax-free, into a junior ISA. The amount you can save changes every tax year, which runs from 6 April to 5 April. The junior ISA limit for tax year 2017/18 is £4,128.
Junior ISAs replace child trust funds (CTFs), which the government no longer provides – although if you have a CTF, you can continue with it.
Junior ISAs were introduced in November 2011 and were available to children born after January 2011 and children born before September 2002, who were excluded from child trust funds. However, from 6 April 2015, the red tape was lifted and parents who hold a CTF can move their children’s money into a junior ISA instead. See the Q&A here.
When the government introduced junior ISAs, it was estimated that six million under 18s would 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.
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. New Isa rules mean you can invest flexibly in both – you can one of each and chose or put all your money in one type, as long as you do not exceed £4,128 this tax year.
VIDEO: What are Junior ISAs? Kalpana Fitzpatrick explains it in a minute.
Junior cash ISAs v Junior shares ISAs
Junior cash ISAs
The junior cash ISA is a cash tax free savings account, into which you pay money into, just like you would in a bank account.
In a junior cash ISA, your money may not grow very fast, but it could be a good option for parents that are investing for a child that is close to age 18 and may need the money soon or do not like the ideas of putting it into riskier investments.
The return on your cash depends on the interest rate of the account and this is why it is important to shop around for the best interest rate – do not be afraid to switch providers at any time if you find better rates elsewhere.
Just like bank accounts, interest rates for junior ISAs do vary, so you should always shop around to get the best deal.
MMM has researched the market and the table below lists some of the best interest rates available to you:
|Provider||Interest rate % (AER)||Minimum needed|
|Coventry Building Society||3.25%||£1|
|Nationwide Building Society||3%||£1|
The junior shares ISAs
With a stocks and shares junior ISAs, you have the opportunity to invest in the stock market via your provider.
This is a more risky approach, unlike the cash ISA where there is minimum risk.
The return on your investment depends on the performance of the companies your ISA is investing in. If the stocks and shares do badly, you could lose all or some of your investments, but if they perform well, you can expect some high returns on your investments.
Historically, data shows that returns from these types of investments can produce better returns.
A provider for stocks and shares junior ISA will have a number of options for you to invest in, and some even offer Shariah (Islamic) or ethical funds.
Stocks and shares can be a good choice for parents who are investing for a child who is still very young, as they are investing for the long-term.
There are a number of providers for stocks and shares ISAs.
Accounts are subject to annual management charges – these can vary from 0.5% to 2%.
So, for example, if you pay £1,000 in one year, and the charge is 1.5%, then you will pay £15.00 in charges, if the charge is 2%, then you will pay £20.
There may be additional fees -you should speak to your provider in detail to see what charges you will be subject to before making a decision.
Fees are well hidden – often like trying to find a needle in a haystack. So always check the small print. Anything 1% and under is very reasonable but the average charge is usually around 1.5%.
Some specialist providers, such as Shariah funds, may have higher charges. Higher charges can eat into your returns, so choose carefully. People do not ask about fees often enough! Note – although we have listed two funds below which have high charges of 5%, they have been listed for their specialism which some readers may be in search for.
You can open a junior stocks and shares ISAs from as little as £10 a month.
MMM has listed some stocks and shares providers below:
What you should know about junior ISAs
- When saved into the junior ISA, the money immediately belongs to the child, not the parents.
- Your child can do what they want with the money once they reach 18 – you will have little or no control.
- Once opened, friends and family can invest in the child’s ISA – parents, grandparents, aunties, uncles and so on.
- When your child reaches age 18, they can move the junior ISA into an adult ISA, so savings will remain tax-free.
- Everyone in the UK under age 65 can earn up to £10,000 a year tax free, whether this is through wages or interest. Unless your child in going to exceed the tax free limit, the inflexibility of having money locked away until your child is 18 in a junior ISA may not suit you
- You can only open one junior ISA in a tax year, but you can transfer to another Junior ISA at any time. Always ask your provider to make the transfer. if you take the money out, you could lose the tax-free status of the savings.
- Those born between 1 September 2002 and 2 January 2011 can’t get junior ISAs – they have child trust funds.
- You can have a junior ISA for every eligible child
- You can now switch your CTF to a junior ISA. Ask you CTF provider for a form, do not take the money out yourself for the switch.