Saving for your child’s future with a Junior ISA

Saving for your child’s future with a Junior ISA

Junior ISAs

It’s back to school season! Kids are back in the classrooms, life is back to normal, and many parents might find they have more mental bandwidth to think about their children’s future.

If you’re thinking about how best to save money for your children’s future, you may want to consider opening a Junior ISA on their behalf.

What is a Junior ISA?

A Junior ISA (or Junior Individual Savings Account) is a long-term savings account that’s taken out with a financial provider. It’s opened on behalf of a child by a parent or legal guardian.

Any child under the age of 18 who’s living in the UK can have a Junior ISA set up in their name. Junior ISAs share some of the same features as adult ISAs, such as a yearly investment limit and the fact that no tax is payable on interest or investment gains.

Junior ISAs are typically set up to save for a child’s future. Whether that’s to pay for driving lessons, gap year travel, or a long-term savings goals; it’s up to you.

The child cannot access funds until they are 18 but after that, they can spend the money however they see fit. They are the only person who can access the funds (unless under exceptional circumstances).

How does a Junior ISA work?

Unlike ISAs designed for adults, Junior ISAs have some distinct features:

  1. As mentioned, Junior ISAs can only be opened on behalf of a child under 18 by a parent or legal guardian. They can be opened any time, including as soon as the child is born.
  2. Money in the account belongs to the child, but they can’t withdraw it until they turn 18. They can, however, manage their account independently when they turn 16.
  3. Like all ISAs, Junior ISAs have a year investment limit. For the 2022/23 tax year, that’s £9,000. Any excess funds are held in a savings account in trust for the child.
  4. When your child turns 18, their account is automatically converted into an adult ISA and they can access funds immediately.

It’s not just parents or guardians who can contribute; friends and family can all contribute to a Junior ISA (within the annual limit).

It’s worth noting that if your child was born between 2002 and 2011, you might have already opened a Child Trust Fund (CTF) for them. CTFs can be transferred into a Junior ISA at any time.

What types of Junior ISA are there?

There are two types of Junior ISAs: Junior Cash ISAs and Junior Stocks and Shares ISAs. Both have distinct benefits and drawbacks.

Junior Cash ISAs

A Junior Cash ISA is similar to a bank or building society savings account. While it’s still an investment, there is minimal risk and you are likely to get back what you put in.

One key advantage is that your child won’t have to pay tax on the interest they earn on their savings, and in most circumstances, neither do you.

Junior Stocks and Shares ISAs

This ISA allows you to put your child’s savings into investments, such as funds, shares and bonds. Any profit earned through trading are free from tax.

Like other investment products, where there’s an opportunity to profit there’s also a risk of losing out. Fluctuations in the economy will affect the value of this type of ISA.

You can also choose to open one of each type of Junior ISA for your child.

Are Junior ISAs a good choice for my family?

While Junior ISAs are a great way of investing for your child’s future, they’re by no means the only way to save. The best way to save will depend on your family’s preferences and unique financial goals.

For some people, Junior ISAs are the right call. They might like the benefits of:

  • no tax payable on interest or investment gains
  • locking funds in place until the child is 18
  • having the child manage their own savings and accounts when they turn 16.

Other people might not like how the child isn’t able to access funds until they’re 18, or having to abide by the yearly investment limit. Other saving solutions, such as putting funds into Trust or opening a child-specific savings account, might be a better fit.

Finding the savings approach that suits you and your family isn’t always straightforward. Our friendly and knowledgeable team of financial advisors can chat through your circumstances and needs to find the best approach for you.

Investing financially in your child’s future

If this is something you’ve been thinking about, there’s no better time than now to start putting a savings plan in place.

Get in touch with the HWIFM team to start exploring your options today.

And in the meantime, why not check out our blog post on how to start a conversation with your school-aged children about saving and start encouraging healthy money habits?

The value of investments can fall as well as rise. You may not get back what you invest.