What is a junior ISA?
- A JISA is an ISA which parents can use to save for their child’s future.
- Introduced in 2011 to replace the previous Child Trust Fund (CTF).
- JISAs can only be opened for children under 18.
How does a JISA work?
- JISAs come in both cash and stocks and shares varieties.
- They have the same tax protection as normal ISA accounts.
- Anyone can pay into a child’s JISA.
- Up to £4,368 can be paid into a child’s JISAs each year.
- Each child can only be assigned a maximum of one cash JISA and one stocks and shares JISA, unlike adults who can open new ISAs each year.
- A child cannot have a CTF and a junior ISA, but money from a CTF can be transferred to a JISA.
- Money in a JISA cannot be accessed until the child is 18.
Junior cash ISA vs junior stocks and shares ISA
This section will explain the two different types of JISA, as well as their pros and cons.
A cash JISA:
- Functions just like an adult cash ISA.
- Is essentially a savings account but with interest paid tax-free.
- Is fully FSCS protected.
- Interest rates can be higher than on equivalent adult cash ISAs – up to around 3.5% compared with 2% respectively.
- However, the effect of inflation will likely nullify the interest paid over the length of a cash JISA’s term.
A stocks and shares ISA:
- Functions just like an adult stocks and shares ISA.
- Is an investment ISA – so money put in can be lost or can potentially grow faster than a cash ISA.
- All profits made from a stocks and shares ISA are tax-free. The JISA allowance of £4,368 can be split between a cash JISA and stocks and shares JISA in whatever proportions you like.
What happens to a junior ISA when your kids grow up?
This section should explain how JISAs are transferred once the child they were opened for becomes an adult.
- A JISA is controlled by the person who opened it (usually a parent) until the child is 16 years old.
- Once the child turns 16, they are allowed to manage their JISA (i.e. splitting money between their JISAs/transferring to another provider).
- Once the child turns 18, the JISA is immediately converted to an adult ISA of the same type (cash or stocks and shares) and they are free to do what they wish with it. This includes continuing to save up to the new £20,000 allowance or withdrawing the money.
- The only circumstance which would allow the person who opened a JISA to withdraw the money early would be in the case of the child being terminally ill.
Is a junior ISA right for your kids?
This section should discuss who is most suited to opening a JISA for their child, and why some people should look at alternative options. This should be discussed in relation to the pros and cons of the JISA relative to other products.
- It’s important to remember the JISA allowance is not part of your adult ISA allowance, meaning for most people it is a good move to take advantage of a JISA if they can afford to save.
- A cash JISA will provide a safe place to save for a child’s future, however interest rates are lower than potential returns from a stocks and shares JISA.
- If you are looking to save larger amounts each year, a junior savings account may be a superior option. While many of these accounts have capped yearly deposit limits similar to the JISA limit, some have higher limits or no limit at all. This could allow you to grow savings quicker than a JISA would.