Your need-to-know guide to the junior ISA
Why wait until your child’s eighteenth birthday to give that cash sum towards their future? The Junior Individual Savings Account (JISA) is a government savings scheme aimed at encouraging parents to invest money on behalf of their children.
Like an adult ISA, you can chose to keep cash, stocks or investment funds away from the taxman’s grasp. However, unlike the adult ISA, Junior ISA investments cannot be cashed in before the the child reaches 18.
Here we answer your questions:
What is a Junior ISA?
This is a tax-advantaged investment wrapper that enables parents, grandparents, friends and guardians to invest on a child’s behalf, with any income and profits earned on the investment accumulating tax-efficiently.
A total of £3,600 can be set aside each tax year for your child in a Junior ISA wrapper, and the account can be accessed on their eighteenth birthday. You can choose from a range of accounts – so, like adult ISAs, these include stocks and shares and cash options, provided by banks and building societies, to benefit from the tax advantages.
Why was the Junior ISA introduced?
The JISA was introduced to replace Child Trust Funds, which were scrapped in January 2011. CTFs were a savings scheme launched by the Labour government with the aim of building a child’s next egg by the time they reached eighteen. However, it wasn’t a success - while parents received a £250 voucher to open a Child Trust Fund (CTF), only one in five added to their account after this, and most saw poor returns on their investment given low interest rates and a turbulent market.
However, unlike with a CTF, the Government will not be giving you a voucher worth £250 to kick-start your child's fund.
Who can hold a Junior ISA?
Children under the age of 18 who are resident in Britain and do not already have a Child Trust Fund are eligible for Junior ISAs. However, children over 16 or over can open a JISA themselves rather than rely on their parents - otherwise a parent or guardian will have to do this on their behalf.The eligibility to invest in a Junior ISA will depend on your individual circumstances, and all tax rules may change in the future.
Why should parents open one?
The cost of having a child is racking up – there are rising university fees to consider, if your child enters higher education, while getting a foot on the property ladder can be impossible for many without parents’ help. This scheme is aimed at encouraging parents and young people to save – and give them a kick-start in life.
Parents, grandparents, family and friends are all able to put money into a child's Junior ISA, so birthday and Christmas money can be added to it, for example. Over time, the hope is that the amount will grow a decent fund for the child’s future.
What can parents invest in?
Like an adult ISA, a JISA is a wrapper in which any stock or fund can be placed – or you can hold this in cash if you want to steer clear of the stock market. Or you may choose to put the money in cash and invest it at a later stage.
However, unlike adult ISAs, you must choose just one provider at a time to manage your investment Junior ISA and one provider to manage your cash JISA.
For example, you cannot hold a cash account with one provider one year and another the next unless you transfer the balance across – but you can do this with adults ISAs.Please remember, the value of investments can go down as well as up and you may get back less than you invested.
How much could my investment amount to?
Given discipline and the right environment, the sum you can save for your child could be significant. However, remember that you cannot roll your annual allowance over – so if you do not use your tax-free allowance each year, you lose it.
Those who can afford to make the maximum contributions could see their child start university with a fund worth more than £100,000 at growth of 4% a year.
Investment options include lump sum investing and regular saving from £50 a month.
Junior ISA: key features
• Cash or stocks and shares can be held in a JISA.
• Returns are tax-free.
• Annual contributions are capped and there are no government contribution to the account.
• Money placed in the account will be owned by the child.
• Funds will be locked away until the child reaches eighteen.