One of the most popular ways to save for children is to open a Junior ISA. These are tax-free savings accounts that allow you to save up to £4,128 each year in a cash deposit or by investing in stocks and shares. There is no tax to pay whilst the money grows inside the JISA account and all withdrawals are tax free.
JISAs are a simple way to save for a child’s future – there are lots on the market to choose from and they are usually easy to open, either by depositing a lump sum or setting up a direct debit. Parents or guardians need to open the account, but once open anyone can contribute.
If the maximum allowance is paid into the account every year, and it grows at a rate of 5% every year, then your child could have a fund of over £100,000 available to them on their 18th birthday.
The Junior ISA is the successor to the Child Trust Fund (CTF). If your child already has a CTF then you have the option either to keep it and continue to make contributions, or to transfer the CTF into a JISA. You cannot hold both. Junior ISAs now offer a number of advantages over CTFs, including more choice in the market, access to a wider range of investments and lower fees. Sadly, at the time of writing few providers offer the option to transfer. We hope that the Government introduces legislation to make this more widely available.
There are two disadvantages to using a JISA:
- The money belongs to the child, who can’t withdraw it until they are 18. You cannot get back the payments once they have been made
- Once the child turns 18 they have unrestricted access to the fund
If you are confident your child will use the money to fund their education and put down a deposit on their first property, then this will give them a great start in life. However, not every child will be this sensible and you cannot prevent them accessing the funds. On their 18th
birthday the fund will be converted to a standard ISA in their name.
To read more on the best ways to help your children secure their financial future, download our new Investing for Children’ guide.
You can set up a JISA using Simply EQ.