What’s A Junior ISA?
You might be asking yourself,
Junior ISA is an investment option that allows people who are 18 years old and below £4000 to invest in stocks1, shares funds, or cash.
This type of account does not have a maximum limit on the total amount invested as long as it doesn’t exceed what has been set by the government, but they have restrictions on which assets can be bought with these investments.
The idea behind investing money at this age is to give children time to learn about how it works before committing their future earnings to something more significant such as pensions.
On the other hand,
Children will then be able to use their knowledge when they reach adulthood and decide if they want to keep saving for retirement through the Junior Isa route or look elsewhere like pension schemes.
Kids won’t access their money until they are 18 years old and need a parent or guardian’s signature.
They will also have to pay tax on what is withdrawn from the account, just like other savings accounts.
Still, if any interest earned has been left in the account, it can continue growing without being taxed, meaning that at 18, they could withdraw it all with no penalties apart from paying income taxes as applicable.
If children decide not to go down this route, then parents should consider putting something else aside into an ISA so that future earnings are kept safe and secure for when they retire.
What Are the Different Types of Junior ISA?
There are two types of Junior ISA2: cash and stocks & shares.
Cash-based accounts have a maximum £4000 allowance per tax year, while the total amount you can invest in stock-based investments is unlimited.
Keep in mind,
The latter option might sound tempting, but there’s no guarantee of investment growth or even stay the same – it could go up as well as down! If you’re not prepared to lose any money, then stick with normal savings account for now.
It’s also worth remembering that anyone aged 18 or under can open up a Junior ISA account despite its name – it doesn’t have to be someone with an income of their own!
So, where does this leave parents? They need to think about what type of investment will suit them best to advise their children accordingly.
But before rushing into anything, it’s worth reading up on the different types of Junior ISA, what they do and how you can best use them.
How Much Can You Put Into a Junior ISA?
You can only put up to £20 a month (or £200 annual limit) into your Junior ISA.
This allowance is the same no matter what type of account you have, so it doesn’t make any difference if you invest in cash or stocks and shares.
When Will My Child Get Access to The Money?
When you open a Junior ISA account, the money goes into what’s called “locked” form.
To become unlocked and usable by your child, they’ll need to be 18 or under on their next birthday.
The other thing worth remembering is that when your child finally gets access to the funds in their account, if they don’t touch them again for another five years after this date, then they can withdraw all of the money from their account at any time with no penalties – though remember that there will still be tax implications because these are investments rather than savings.
Does The Government Pay Money Into Junior ISAs?
No, the government doesn’t contribute to Junior ISAs.
Funds invested in a Junior ISA are your child’s money, and they’ll only get it back if they use it for higher education or training costs before their 18th birthday.
Parents may want to consider investing in stocks and shares as a way of providing the highest returns for their child’s future.
Junior ISA or Child Trust Fund
Junior ISAs are investment account where the money is invested over time is intended for children under 18 years old.
Junior ISA’s follow different rules to other types of investments, and while they’re quite similar to Child Trust Funds1 (CTF), there are some key differences.
The most apparent difference between CTFs and Junior ISAs is that with Junior ISAS, you can withdraw your funds as soon as you want after opening an account without any penalties – but remember that withdrawals will still be taxed because this is considered investment income rather than savings.
If you don’t touch them again for another five years, then they can withdraw all of the money from their account at any time with no penalty – though remember that they may have to pay tax on the money again.
The other key difference is that Junior ISAs are intended for 18-year-olds and under, whereas children of any age can open CTFs up until they turn 18.
This means you’ll need to open a new account once your child turns eighteen – if he or she hasn’t already done so before then!
Parents should note these rules when considering their options for investing in their children’s future because Junior ISA accounts offer greater flexibility than most traditional investments while also offering some degree of protection against inflation.
They’re not perfect – as with anything else, there are pros and cons – but for parents who want to invest in an area that will come back time after time without risking the child’s capital, they’re an excellent option.
Best of all:
If you want to take advantage of the tax-free allowance available with Junior ISA accounts, then look into opening one within thirty days from their eighteenth birthday.
This could mean that Junior ISA rules have less benefit because funds can’t grow unrestricted – however, they do provide many advantages over a savings account.
Who can contribute to a Junior ISA?
The Junior ISA can be opened and managed by the parents of a child under 18 years old or an adult with parental responsibility for the account holder (for example, if you’re their step-parent).
Is a Child Trust Fund better than a Junior ISA?
A Child Trust Fund is tax-free savings account for children under 18 years old. A Junior ISA provides the same benefits, but because of the annual allowance, there are limits on how much can be put in each year – so it’s best to check with your provider what they offer before you open an account.
Can grandparents Open Junior ISA?
No. Grandparents cannot open a Junior ISA account. Still, they can contribute to the annual allowance – for example, if you have three grandchildren and want to give them £100 allowance per child yearly as their birthday present.
Can you have a Child Trust Fund and Junior ISA at the same time?
No. To have a Child Trust Fund or Junior ISA, you can only open one account for them.
To sum it up:
Cash JISA accounts are suitable for anyone who wants to save money without investing in stocks & shares.
The account is opened with cash that will remain untouched until it reaches its maturity date, when it will be transferred as a lump sum into the child’s current bank account (or used towards other investments if specified).
This type of account also pays interest – but not enough to outstrip inflation over time, so your money won’t grow quite as quickly as it would in an investment portfolio.
When considering your options for investing in Junior ISAs, you should also be aware of what types are allowed under the terms of this type of investment. You’ll often find a list that details different types and how much each will allow investing – it might not be as simple or straightforward as some other investments. Still, there is plenty of help out there if you need more information before making any decisions!