Life for youngsters these days can be tough. A Junior ISA allows you to invest in your child’s future, giving them a much-needed financial boost that could open doors to them that were otherwise closed. However, (and at the risk of showing our age here), the question you’ve got to ask yourself is: ‘do you trust your teen? Well, do ya, punk?’
Want to know everything about ISAs and the other types available? Check out our Ultimate ISA Guide to Powerful Tax-free Savings.
What is a Junior ISA?
A Junior ISA or JISA is a tax-free savings or investment wrapper designed to allow parents to save for children. It is similar to an adult ISA, however, your savings limits are more restricted.
Any money saved or invested is locked away and cannot be withdrawn until your child reaches 18. At that point, the money is theirs to do with as they please.
And that’s one of the biggest considerations: Do you want your child to have full control of this money at 18? If your answer is ‘no’ or you are unsure, then a Junior ISA may not be for you.
How to save for your children’s future – Check out our guide
Types of Junior ISA
- Junior Cash ISA – similar to a normal Cash ISA savings account but tax-free
- Junior Stocks & Shares ISA – a standard Stocks and Shares ISA in which you can invest in stocks, bonds and funds that hopefully get a better return
You can open and hold both types for your child, however, you cannot exceed the annual Junior ISA allowance across the two.
Junior ISA allowance 2019/20
You can invest a maximum of £4,368 per child during for tax year 2019/20.
Unlike other ISA allowances, the Junior ISA limit increased last year from £4,260 and hopefully, this will continue.
Contributions can be added monthly or in lump sums but must stop when the child reaches 18.
Does a Junior ISA count towards my ISA allowance?
A Junior ISA actually comes out of your child(s) tax allowance, not your personal £20,000 allowance.
This means an adult could save £20,000 per year in their own wrapper, plus an additional £4,368 per child. Of course the child owns the money once it is put into their account.
Who can open a Junior ISA?
Parents or guardians with parental responsibility can open and manage the account for children under 16.
To open an account you need to:
- choose the type of Junior ISA you want for your child – Cash, Stocks and Shares or both
- choose your account provider (see below)
- fill in an online application form
Children aged 16 and 17 can open their own Junior ISA as well as an adult Cash ISA. Children aged 16 also now have a full £20,000 ISA allowance but remain limited to how much they can save in their JISA.
Who can pay into a Junior ISA?
Anyone can pay money in making it ideal for grandparents, family & friends wanting to help out.
The total amount paid in cannot go over the annual limit for the tax year so ensure you discuss amounts with anyone wanting to contribute.
Who does the money belong to?
Regardless of who puts money in, it all belongs to your child whatever their age. You cannot get this money back so consider carefully before putting any money in.
In addition, even though they technically own the money, they cannot access it on their own.
Parents or guardians are responsible for opening and managing the account until the child reaches 16. At 16 a child can take over management of the account.
Crucially though, this all changes when they hit 18, at which point control passes to them.
There are exceptions that allow you to withdraw money.
If your child falls terminally ill or dies the registered contact can withdraw the money. If you are in this incredibly unfortunate position the details of how to withdraw money can be found here.
What happens at 18?
When a child reaches 18 their Junior ISA “matures”. The money can either be paid to the child or converted into an adult ISA.
This is the point at which your parenting skills are tested to their limits! Will they choose wisely and continue to save or blow it all on life in the fast lane?
An alternative to a Junior ISA
The main disadvantage of a Junior ISA is that your child will get free reign over all of the money at 18. Parents wanting to protect this investment or are struggling to decide if they will trust their future kid’s responsibility and resolve may want to consider alternatives.
If you are not using all of your personal ISA allowance of £20,000, you could consider investing your child’s money within your own tax-free wrapper. Adults can have both a Cash ISA and a Stocks and Shares ISA so your choices are not limited.
You can then gift the money to them at a time you feel is right, whenever that may be. You don’t even have to gift all of the money in one go. The point is, you have control.
The drawback is that you consume your own personal allowance. However, if you are already putting in less than £15,632 (2019/20) or are a couple, then this may not be necessary to consider.
Where to get a Junior ISA
You can get a Junior Cash ISA from most high street banks & building societies. For the most up to date best buy table click here.
Junior Stocks & Shares ISAs are a bit harder to come by. If you invest in your own Stocks and Shares ISA you will recognise some of the names below:
|Provider||Annual Charge||Min Investment||Cost per Trade|
Vanguard only let you invest in Vanguard funds, unlike the others that offer the total stock market. Check out this Vanguard review.
The table highlights some common providers however others are available. Before choosing a provider, consider how often you will invest and how much. It is also worth considering if you will buy individual stocks or funds.
When investing for children you have an 18-year time horizon. Money invested in a Junior ISA cannot be withdrawn and so it’s particularly suited to investing and riding out inevitable bumps along the way.
Consider index tracking funds with low fees to minimise risk and hopefully provide your child the greatest return.
How safe is my money?
Money contributed is protected by the FSCS. The protection is different for each type of Junior ISA:
- Junior Cash ISA – Protected up to £85,000
- Junior Stocks and Shares ISA – Protected up to £50,000
FSCS protection applies per institution and per individual, so if you have two or more children they would be protected individually.
Be aware: The FSCS do not provide protection against losses from investments like a stock market crash.
Investing in your children’s future and helping your child with educational costs, buying a car or getting on the property ladder will give them a major advantage. Given the time horizon of a Junior ISA, they are particularly well-suited for investing in stocks and shares. However, if relinquishing control at 18 is a concern and you have the personal tax allowance headroom, consider other alternatives.
If you want to read more about saving for your child’s future check out this article.
EatSleepMoney.co.uk does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. Investments may go up as well as down and you may get back less than you put in.
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