Junior ISA: A Guide to Getting Started

You may be thinking about starting to save for your grandchild's, childs, or even a friend's child's future. A Junior ISA allows you to do just that. Learn what you need to know about Junior ISAs.

Hannah Smith Published on 23 December 2020. Last updated on 20 January 2021.
Junior ISA: A Guide to Getting Started

Everyone wants to see the kids in their lives get the best start, and one way that happens is by saving for their future as soon as possible. A Junior ISA (JISA) is a savings account where parents, relatives or friends can put money aside on behalf of a child.

How a Junior ISA works

A Junior ISA is available to anyone under the age of 18 living in the UK. A parent or guardian can open and manage the account on a child’s behalf, and anyone (including non-relatives) can pay in.

There’s no tax to pay on interest earned or investment gains because the ISA wrapper means savings within it are always tax free. The JISA annual allowance, or how much you can put into the account in a year, is £9,000.

» MORE: ISA allowance explained

Any money in the account belongs to the child. At the age of 16 the child can take control of the account, and at 18 they can withdraw the money and do with it as they wish. If they choose not to withdraw the money when the JISA matures, it converts into an adult ISA and they can just keep on saving.

Types of Junior ISA

There are two types of Junior ISA — cash, and stocks and shares — and you can hold one or both.

With a cash JISA you can only save in cash. With a stocks and shares JISA, you can invest in funds and shares, and/or hold cash.

» MORE: Learn about cash ISAs

Pros and cons of a Junior ISA

Pros

On the face of it, an important benefit is the JISA’s tax-free status. In reality most children won’t pay tax on their savings because, like adults, they have a personal allowance which is tax free. Still, a Junior ISA could still be worth having because the rates they pay on cash tend to be better than what you can get in other types of savings accounts.

A JISA can be a good way to ring-fence your child's savings from your own. Plus, in a Cash JISA savings up to £85,000 are protected by the Financial Services Compensation Scheme.

Cons

Parents might see a risk in their child getting total control of their savings pot at 18, fearing their kid is not mature enough to handle a sudden windfall. To avoid this, some parents who aren’t making full use of their own allowances choose to invest for their children in their own ISAs, thus ensuring they can decide when their child gets their cash.

Another risk particular to saving in a cash JISA is that you could be earning a low interest rate on your money. Over the last 10 years, the average rate of inflation has been 3.1%, so if you’re earning less than this on your cash, it is actually losing value in real terms.

If you choose the stocks and shares option, your returns are not guaranteed.

» MORE: How to choose the best child savings account

How to compare and choose a Junior ISA

Many of the big comparison sites will have best-buy tables for Junior ISA rates. While the interest rate is important for a cash JISA, you should also think about how easy an account will be to manage in the way you prefer. For an investment JISA, you might be looking more for investment choice and low dealing and administration costs.

How to open a Junior ISA

You can open a Junior ISA easily online with many different financial providers, and some will let you start saving with just £1. If you’ve already got a Child Trust Fund, you can’t hold this as well as a Junior ISA. You would need to transfer your Child Trust Fund into a Junior ISA if you wanted to open one.

WARNING: We cannot tell you if any form of investing is right for you. Depending on your choice of investment your capital can be at risk and you may get back less than originally paid in

About the author:

Hannah is an award-winning journalist with a background in the trade press. She writes about finance, asset management and business for Shares, Citywire, FE Trustnet, and interactive investor. Read more

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