Individual Savings Accounts (ISAs) aren’t just for grown-ups: kids can get in on the act too. Junior ISAs, or JISAs for short, are similar to normal ISAs, but you can save for longer.
A JISA is essentially a long-term, tax-efficient way to save for your children, so long as they live in the UK and are under 18. Only a parent or legal guardian can open and manage the account, but once it’s set up, anyone can pay into it.
Lock in the savings until they’re 18
The maximum you can put into a Junior ISA during the 2023/2024 tax year is £9,000. With the allure of tax-efficient growth, it’s a popular way to save. According to HM Revenue & Customs Footnote 1, around 940,000 Junior ISA accounts were subscribed to in 2020 to 2021, the ninth full financial year since the scheme was launched, down from 1 million in 2019 to 2020.
Importantly, with a JISA, the money belongs to the child and is “locked up” until they reach 18. At this point, it changes into an accessible adult ISA to spend as they please. They can manage their account at 16 if they want to but can’t touch the money before turning 18. Tax rules are subject to change and depend on individual circumstances.
Choose cash or stocks and shares or a mix of both
There are two types of Junior ISA – a cash JISA or a stocks and shares JISA with the option to mix and match. You can hold just one, or one of each type and split the Junior ISA allowance of £9,000, in any proportion, between the two. You can also transfer from one to the other and switch to a new provider should you want to.
Most banks and building societies offer cash JISAs, usually with a minimum deposit of £1. It’s best to shop around for a good deal, then monitor your JISA’s rate of interest. If it drops, be ready to switch, but check this option is available when you first apply and remember that over time inflation will reduce the spending power of your money.
With a stocks and shares or investment JISA, if you start saving when a child is born, or soon after, an 18-year investment potentially offers plenty of time to ride out the ups and downs of the stock market. But remember that the value of your investments can fall as well as rise and you could get back less than invested.
Sometimes providers have a minimum monthly amount you need to invest in a stocks and shares ISA, but you'll need to check with your provider to be sure.
Can your child have a Child Trust Fund instead?
Child Trust Funds (CTFs) were a Government scheme where you could save or invest tax-free for children born between 1 September 2002 and 2 January 2011. So you might still have one if your child was born then, but you couldn't open one now. They were replaced by Junior ISAs in 2011.
The scheme gave parents free cash vouchers to encourage them to open a CTF and start putting money aside for their children's futures. But there were three different types of CTF – cash, shares, and stakeholder – each with different rules and charges, and very little investment choice, if any at all. JISAs are more flexible and straightforward. There's a Junior Cash ISA and a Junior ISA with a wide range of investments. Simple.
But, in the same way as a Junior ISA, you can pay up to £9,000 per tax year into a CTF. And anyone can pay into it, not just parents. The money belongs to the child and they can withdraw it at 18 and take over the account at 16.
Nowadays, many providers give you the option to transfer a CTF into a JISA.
Consider a different child savings account
As money can’t be withdrawn from a JISA or CTF until your child is 18, you may want to explore other young savers accounts.
Before you do, MoneyHelper offers some words of caution. If you’ve given your child money that earns over £100 a year in interest, dividends, rent or any other investment income, the interest will be taxed as if it were yours.
This could push you over your personal savings allowance. On the upside, the £100 limit does not apply to money given by grandparents, relatives or friends.
Children's savings accounts come with requirements, so make sure the account suits you and and your child's circumstances.
Choosing the best savings account for your kids
Regular children’s savings accounts let you put away a fixed amount with a minimum deposit, each month, usually for a set term of a year. These are great for smaller amounts, offer attractive interest rates but have withdrawal restrictions.
For larger amounts, easy-access children’s savings accounts let you and your child add or withdraw cash at any time. But what you gain in flexibility you lose in interest as rates are lower than regular savings or fixed-rate accounts.
If you don’t mind committing your money from one to five years, children’s fixed-rate savings accounts, or bonds, offer a better-guaranteed rate in return. But note that you can’t withdraw money during this time, so can’t switch should the interest rates rise.
A junior savings account can offer some valuable early lessons in money management. And if your child is intent on spending their JISA money wisely at 18, there’s even more good news. With a new generation of products designed for millennials, such as the Lifetime ISA, there’s every hope they will carry on stashing the cash, tax-efficient, for years to come.