Junior ISAs 101

Saving for your children is a good way of ensuring that they get off to a good start in adult life. The Junior ISA   introduced in November 2011 to replace the old Child Trust Fund   is a good way of investing for your children and it’s tax-free too.

Who Is Eligible?
A Junior ISA is available to any child born on or after January 3rd 2011 and any child under eighteen born before September 2002 who wasn’t eligible for a Child Trust Fund. If your children already have Child Trust Funds then they aren’t eligible to open a Junior ISA. Presently, there’s no way to transfer between the two products but this may change in future.

A new Junior ISA can only be opened by the child’s parent or guardian but there’s no restriction on who can contribute to it.

How Does It Work?
Up to 3,600 a year can be invested in a Junior ISA and remain tax-free. This money can come from the parents, grandparents or other friends and relatives. You can make regular or occasional payments into the account. It’s important to note that money invested in a Junior ISA is locked up until the child is eighteen, although they can take over the management of their own account from the age of sixteen. If you don’t invest the maximum amount each year then you can’t carry over the unused allowance to the following tax year.

You can choose to have a Junior Cash ISA or a Junior Investment ISA. It’s possible to have both but the annual  3,600 limit still applies across the two accounts. If you choose a cash ISA there’s no risk to the money and any interest is paid tax-free. Fixed-rate and variable-rate Junior Cash ISAs are available. You can transfer to a different provider or to an investment ISA at a later date if you wish.

With a Junior Investment ISA the money is inverted on the stock market. This gives you a much wider choice of investment options but is, of course, also riskier. You can manage the risk by choosing where you invest and historical precedent suggests you’ll get better returns over the long term. You have the option to transfer to a different provider or a cash ISA if you wish. Do check, though, to see if you’ll incur any charges for doing so.

There are lots of different options when it comes to Junior ISAs and it’s a good idea to use a site such as MoneySupermarket.com, which will help you to compare what’s on offer.

Article written by Andrew Griffiths – Not a Financial Advisor – for entertainment purposes only