Want to put money aside for your children’s future? Whether its education, emergency funds, or a deposit for a house, setting up a junior ISA will help you give your children a good financial start.
Here, we’ll give you the key information you need to know about how junior ISAs work and where to find one that matches your specific needs.
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A Junior ISA is an investment and savings account that offers tax efficiencies. This often makes it better for long-term savings than just opening up a normal savings account with a bank. It’s commonly used by parents as a tool for helping their child or children to get off to a head start with a lump sum that they can access when they reach 18 years of age. This makes it good for major financial goals such as covering your child’s university fees or helping them towards their first mortgage deposit.
However, as with all financial planning, there’s no one size fits all investment solution, so it’s best to get professional advice before taking out a junior ISA.
A Junior ISA can be set up by a parent or legal guardian who will be responsible for managing the account until the child turns 16. From the age of 16 onwards, the child has the option of managing the account themselves but cannot access the funds until age 18. There are two main types of junior ISA, stocks and shares Junior ISAs and cash Junior ISAs, and you can take out one of each for a child.
Junior ISAs are tax efficient, this means that when you invest into a child ISA, you won’t need to pay any additional income or capital gains tax on investment profits you make.
As a tax efficient savings account, the government limits how much you can pay into a Junior ISA per tax year. The annual savings limit for the current 2019 to 2020 tax year is £4,368.
All the funds that accumulate in a Junior ISA belong to the child, who can start withdrawing funds from the age of 18, or sooner in exceptional circumstances.
A child can have both types of ISA at the same time, but if they already have a Child Trust Fund they’re not allowed to have a Junior ISA as well. However, you can choose to transfer out of your CTF and set up a junior ISA instead.
Who can pay into a junior ISA?
Although a junior ISA must be opened by a parent or guardian, anyone can pay into it, be it grandparents, friends, or relatives. However, the total amount contributed can’t exceed the annual savings limit of £4,368.
Who is eligible for a child ISA?
You can take out a junior ISA for a child or baby as long as they:
- Are resident in the UK
- Are below the age of 18
A junior ISA allows you to easily set aside a lump sum to help secure your kid’s financial future. With help towards university fees or securing a deposit for their first property, your child will benefit from a significant financial head start that they can use to quickly start building up their own savings. With a junior ISA, you can teach your children to develop their own saving and investing habits as they grow older and you give them a savings platform to build on.
A junior ISA might be worth getting if you’re looking to build an investment pot over time that’s tax efficient and easy to pass on to your child at the right time, but speak to an advisor before making any final decisions about whether this is the right investment choice for your family.
Many high street providers such as Nationwide, TSB, Coventry Building Society or Halifax offer cash junior ISAs. Fees and interest rates for stocks and shares Junior ISAs may vary considerably more than those of a cash ISA – making an apples to apples comparison of these tricky.
You can do a general comparison of fees and interest rates through your own market research, or, for more accurate results, contact a financial advisor who is experienced in helping people source the best deals.
Can junior ISAs be transferred?
The answer is yes! You can transfer a Junior ISA from one provider to the next at any point and you can also switch from one type of ISA to another. Make an enquiry with us if you’d like to speak to a financial advisor who can help with transferring accounts and guide you towards the right investment option for your situation.
When did junior ISAs start?
Junior ISAs were set up as an investment tool in 2011. They replaced Child Trust Funds (CTFs) which came onto the market in 2002. If you hold a CTF, it may be a good idea to transfer to a junior ISA as these often offer lower fees and a bigger choice for investment options.
Since April 2015, transfers from CTFs into Junior ISAs have been allowed and hundreds of thousands of parents have switched accounts but only the registered contact for the CTF can transfer accounts.
Can grandparents open junior ISAs for grandchildren?
Grandparents are often significant investors into child ISAs but they can only open junior ISAs for grandchildren if they are legal guardians with parental responsibility for the children. But anyone can invest into an ISA, so as long as your grandchild has an ISA set up, you can pay into it whenever you choose.
What are the best ISAs for grandchildren?
A child or junior ISA is often one of the best ways to save for your grandchild’s future, if you are the child’s legal guardian. You can also pay into one opened by their legal guardian.
You can build up tax-efficient funds until the child turns 18. The ISA that’s best for your grandchild will depend on factors such as your investment risk appetite, length of the investment term, cost of fees charged by the provider, as well as withdrawal terms.
A financial advisor can make finding the best ISA for your grandchildren easy for you by taking you directly to the Junior ISA that matches your situation.
When can a child access their junior ISA?
A child is allowed to withdraw funds from their junior ISA from the age of 18, or earlier in exceptional circumstances such as terminal illness.
What are the junior ISA limits?
Anyone can pay into a Junior ISA, and you can take out a cash ISA or a stocks and shares ISA, or both for your child, but there’s a total investment limit of £4,368 for the 2019-2020 tax year.
When do junior ISAs mature?
When they turn 18, their Junior ISA will automatically be upgraded into an adult ISA with the same investment type. For example, a junior cash ISA will turn into an adult cash ISA.
Junior ISAs for a 16 year old
When a child turns 16 can’t access their junior ISA funds but they can manage their own account. No funds can be withdrawn until they reach their 18th birthday. However, some providers only allow children to manage their accounts from 18 years on, so you’ll have to check the rules of each provider before you set up a junior ISA.
In many cases, setting up a junior ISA is a great way to invest in your child’s future. Investing regularly and starting early means that your funds will benefit from compound interest and have time to ride through any potential stock market ups and downs. With the help of an expert financial advisor you can set up a junior ISA with the returns and investment portfolio that matches your needs.
One of the experienced financial advisors we work with can help you make a well informed decision about which junior ISA to get and take you directly to the right provider.
We only work with the best financial experts from across the UK, get in touch with an enquiry or call us on 0808 189 0463 and we’ll connect you – free of charge – to a specialist junior ISA advisor.