What is a Junior ISA?
08 November 2011
Posted by John Forth
You've probably heard of the Junior ISA, but how much do you know about it? Like most long-term savings and investment products, the options available can be a little daunting at first. That's why we've put together this quick and simple guide to what the Junior ISA is, and how it can help you save for your child's future.
What is it?
Essentially, the Junior ISA is an affordable way to save or invest for your child.
You can set-up a stocks and shares, or cash, account (more about the different options later!) or a combination of both. The accounts don't need to be opened with the same provider. Once your Junior ISA is set-up you can't open a new account every year the way you can with an adult ISA, however you can transfer the account(s) to another provider at any time.
You, family and friends, can then contribute up to a total of £3,600 this tax year into the account. This amount is the combined total across any Junior ISAs you have opened for a child, and it will increase each tax year from 2013.
So, for example, you can put £2,000 into a stocks and shares account, and £1,600 into a cash account. Or just put the whole amount into one or the other.
It's up to you how and when you pay in. Only the child will be able to access the money, and only when they reach age 18. They can, however, manage the account themselves from the age of 16.
Who can open a Junior ISA?
An affordable way to save or invest for a child."
You can open a Junior ISA on behalf of your child as long as they:
- are resident in the UK
- are under the age of 18
- did not qualify for a Child Trust Fund
Some providers may have their own criteria, e.g. they may only offer their account to children under a certain age. So always check the features of the individual accounts to make sure it's right for you!
Choosing how to invest
There are two kinds of Junior ISA available:
- stocks and shares; and
However, you don't have to choose one or the other. If you prefer, you can invest in both a cash and a stocks and shares Junior ISA, as long as the combined total of both accounts doesn't go over the £3,600 limit.
Here's a little more information on your options.
Stocks and shares
Money put into a stocks and shares Junior ISA is invested in - you guessed it - stocks and shares!
This kind of account aims to make your child's money earn more than if it was deposited in a savings account. Research shows that for every 18-year period in the last 50 years, stocks and shares have outperformed cash*, although, of course, past performance isn't necessarily a guide to future performance.
There is a risk here, though, that the value of the account can fall as well as rise, so the child could get back less than was paid in.
A cash Junior ISA works more like a bank or building society account. Once your child's money has been deposited in the account, it will earn interest over the Junior ISA's life. The interest rate will depend on the provider you choose.
This is the least risky option, as there's no chance of the value of the account decreasing. But it's worth keeping in mind that due to the effects of inflation, your child will not be able to buy as much in the future with the amount that you've set aside as they could today.
Where to get one
There are loads of providers out there, some offering a cash Junior ISA, some offering stocks and shares Junior ISAs, and some offering both. Which one you choose really depends on what is right for you and your child.
Our parent company, Family Investments, offer a stocks and shares Junior ISA. For more information, visit the Family Investments website. Please remember that Family Investments does not provide advice. If you have any doubts about the suitability of this account, you should seek independent financial advice.
* Source: Barclays equity gilt study February 2011. Average annual real rate of return based on Barclays indices.