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Junior ISAs

Saving early can put your children on the path to a solid financial future. Junior ISAs let you save and invest on behalf of a child under the age of 18. And with no tax on the earnings, the money you put away can grow even faster.

Who is eligible for a Junior ISA?

You can open a Junior ISA for your child if they:

  • Are under 18
  • Live in the uk

From April 2015 anyone with money in a Child Trust Fund can transfer it to a Junior ISA.

If a child was born between 2002 and 2011, they might have a Child Trust Fund (CTF). These can be transferred into a Junior ISA.

Not to worry though if the CTF is not transferred, when a child reaches 18 they’ll still be able to access the money.

How do Junior ISA’s work?

A child’s parent or legal guardian must open the Junior ISA account on their behalf.

Money in the account belongs to the child, but they can’t withdraw it until they turn 18, apart from in exceptional circumstances. They can, however, start managing their account on their own from age 16.

The Junior ISA limit is £4,260 for the tax year 2018-19. If more than this is put into a Junior ISA, the excess is held in a savings account in trust for the child – it cannot be returned to the donor. Parents, friends and family can all save on behalf of the child as long as the total stays under the annual limit. No tax is payable on interest or investment gains.

When your child turns 18, their account is automatically rolled over into an adult ISA (sometimes called NISA). They can also choose to take the money out and spend it how they like. This may be a vehicle purchase or further education etc.

Types of Junior ISA

Your child can have a Junior Cash ISA, a Junior Stocks and Shares ISA or both.

If they have both, the most they can save is still subject to the £4,260 limit for the 2018-19 tax year.

Junior Cash ISAs

A Junior Cash ISA is essentially the same as a bank or building society savings account.

The big advantage with the junior ISA is that your child doesn’t have to pay tax on the interest they earn on their savings, and you don’t have to either.

Junior Stocks and shares ISAs

With a Junior Stocks and shares ISA account, you can put your child’s savings into investments like shares and bonds.

Any profits you earn by trading shares or bonds are free from tax.

In this instance investments can be riskier than cash but could give your child a larger profit. Remember, the value of a Junior Stocks and shares ISA can go down as well as up.

Is an ISA a safe place for my money?

Money you put into authorised UK banks or building societies is protected by the Financial Services Compensation Scheme (FSCS).

Money is protected up to £85,000 per person in any one authorised firm is safe even if the firm collapses.

Cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services Compensation Scheme (FSCS).

The FSCS savings protection limit is £85,000 (or £170,000 for joint accounts) per authorised firm.

It is worth noting that some banking brands are part of the same authorised firm.

If you have more than the limit within the same bank or authorised firm, it’s a good idea to move the excess to make sure your money is protected.

Is a Junior Stocks and shares ISA a safe place for my money?

Investment fund assets are held in safekeeping by a custodian on behalf of investors.

If an authorised investment firm goes into default, which means it’s unable to pay claims against it, the Financial Services Compensation Scheme (FSCS) will pay compensation of up to £50,000 per person, per institution. You cannot claim compensation simply because the value of your investment fell below what you originally paid for it.

Information you should be given

A Junior Stocks and shares ISA is an investment product. Investment product providers must provide you with ‘keyfacts’ information that you can understand, covering:

  • What the investment is and how it works
  • The key risks including the risk of capital loss and counterparty risks
  • Charges (the fees that will be deducted from your returns or capital)
  • Whether you’ll have the right to access to the financial ombudsman service and the financial services compensation scheme