Updated: February 07, 2020

A Guide to the Different Types of Junior ISAs

Junior ISAs come in various shapes and sizes. Find out what options are available and which one is right for you in our guide

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: February 07, 2020

If you’re a UK resident with a child under 18, you’re eligible to open a Junior ISA.

There’s a bit of confusion centred around Junior ISAs- in particular, which type of ISA is best for you. This article will explain the details of each type of Junior ISA, allowing you to gain clarity surrounding options available for you and your child.

While it is always best to contact one of our expert advisors choosing the best option for you, this article will cover some popular topics such as:

What types of Junior ISAs are there?

There are two main types of Junior ISA available:

  • A Junior cash ISA
  • A Junior equity ISA.

You can open both types of ISA and invest different amounts into each – as long as you stick to the maximum contribution limit of £4,368. No matter how many junior ISAs you open, you cannot exceed this amount, overall. However, do note that you can only open one per tax year.

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What is a Junior Cash ISA?

A Junior Cash ISA is a product that your money (the funds you’re putting away for your child) is stored and saved in, just like any bank or building savings account.

Any money paid into this type of Junior ISA will receive tax-free interest.

How does a Junior Cash ISA differentiate from a Junior Fixed-Rate ISA?

A Junior Fixed-Rate ISA is a long-term Junior Cash ISA, with an introductory rates period where you will earn more interest if lock your money in for the duration of it.

This type of ISA offers a higher rate of interest during the introductory period – but the higher interest rate is subject to keeping your money in one account for a longer period of time.

Therefore, the longer you keep your money in that account, the higher the returns they’re likely to generate.

The best a Junior Fixed-Rate ISA can potentially provide is a higher interest rate than a normal Junior Cash ISA: as long as you don’t take out your money prematurely, you’re guaranteed more savings.

It’s also important to note that most Fixed-Rate ISA do not allow you to withdraw your money without penalty during the introductory period.

What is a Junior Equity ISA?

A Junior Equity ISA is a product where the money you pay in is invested stocks, shares, bonds and other assets. Hence, it is also known as a Junior Stocks and Shares ISA.

Any profits you make with a Junior Equity ISA are tax-free.

Which Junior ISA is best?

It’s up to you to decide which type of junior ISA- Cash (or Fixed-Rate) or Equity (Stocks and Shares)- is best for your child. It is important to remember that both can be opened at the same time, with varying balances. The product you should ultimately choose will depend on you and your child’s needs and circumstances, as well as your appetite for risk.

Should you find that investing your child’s money into shares is too risky for you, opening a fixed-rate ISA might serve better.

However, be mindful of inflation. By the time your child is 18 – and their account has matured – the cost of living may be higher. Therefore, the amount of money saved and accumulated in tax-free interest might be worth less.

There are advantages to both options: before embarking on your journey, it is always best to consult with an advisor. This will allow you to go over all your options and pick the one which serves you best.

Pros and cons of a Junior Cash ISA

A Junior Cash ISA provides security and tax-free interest on your savings.

The main benefits of these products include…

  • Reliable – You are at no risk of losing the money you put in
  • Tax-free interest
  • You have the option to move money between accounts, should interest rates alter.

However, the downside to opening a Junior Cash ISA can have variable and lower interest (especially if you choose not to open a Fixed-Rate ISA).

Chatting to one of our financial advisors can help you to minimise any chance of being caught out by any downsides.

Pros and cons of a Junior Equity ISA

A Junior Equity ISA allows you to invest your child’s money. While the value of markets increase and decrease, proving to be an unreliable venture at times, the net potential for growth is higher.

Pros:

  • In general, if you’re locking money away for the long-term, an equity ISA is more beneficial.
  • Even though the value of your investment could fall and rise, storing money away for a long timeframe gives you the chance for the rise and falls to even out, resulting in an overall profit.
  • You don’t have to invest in individual stocks and shares- you can buy into funds, which provide a lower risk.
  • You have a wide variety of different options to invest your money into.
  • You can invest in multiple different asset classes- funds, stocks, shares, bonds etc.

Cons:

  • If you aren’t planning on having a junior ISA for too long, this may be a riskier option: in general, five years is classed as the best timeframe for an equity ISA to bloom.
  • You may be required to pay a fee for certain investments- known as TER (total expense ratio).
  • It may take more research, especially if you are unfamiliar with the stock market.
  • The stock market can be an ambiguous venture.

Again, a chat with one of the experts we work with clear things up, offering you the best, bespoke option for your needs.

Ethical Junior ISAs explained

An Ethical Junior ISA allows you the option to invest your child’s money into a more ‘socially responsible’ fund.

Should you decide that a junior equity ISA is best for you, investing your money into an ethical fund might be a beneficial move, with some interesting financial benefits to boot.

What is Ethical investing?

Ethical investing is investing your money into ‘socially responsible’ funds.

First, let’s detail the funds available for you to invest into:

  • Socially Responsible Funds
  • The Entire Investment Market- good/bad/neutral
  • The ‘Vice’ Fund- businesses which involve the production and selling of gambling, booze, etc.

Opening an ethical junior ISA might provide for you a higher profit- this is all dependent on the type of fund you choose.

Make an enquiry with us if you would like bespoke advice on the different types of ethical junior ISAs available and which one may be best for you.

Is an Ethical Junior ISA for you?

Investing in an ethical junior ISA is the more popular approach in the current climate, as calls for a sustainable environment, clean water, healthcare and education are rising.

It is always important to consider investing money into issues which are important to you and talk them over with a financial advisor. The experts we work with can help you decide which investments are right for you based on your preferences and the potential returns.

Speak to an expert advisor today

We recommend you get in touch with one of our expert financial advisors, in order to gauge the best option for you. We will also put you in touch with the right provider and siphon out any worries or confusion during the process.

Don’t hesitate to make an enquiry or give us a call on 0808 189 0463 and we will connect you, free of charge, to an expert junior ISA advisor.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in ISAs. Ask us a question and we'll get the best expert to help.

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Richard Angliss

Richard Angliss

Finance Expert

About the author

Richard Angliss has made a career in financial services which stretches over 40 years.

His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

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*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

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