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Junior ISAs
Having scrapped the Child Trust Fund, the Government introduced a brand-new savings and investment account for children, Junior ISAs.
Like ISAs for adults, Junior ISAs are designed to help you making tax-free savings and investments up to a certain amount of money for your children every year.
Junior ISAs are were launched on 1 November, 2011.
What are Junior ISAs?
Junior ISAs stand for Junior Individual Savings Accounts. You can see Junior ISAs as another version of ISAs for adults but for Children.
Who is it for?
Anyone can open Junior ISAs on behalf of a child with a financial institution in the UK. There are certain rules applicable for those who wish to do so:
A: the child must be under 16 years old
B: the child must be a resident in the UK
C: the child who did not qualify for the Child Trust Fund
How do they work?
There are two types of Junior ISAs, Cash Junior ISA and Fund Junior ISA. As Junior ISAs are so efficient a savings and investment tool for children, the Government will set up an annual cap on the amount of money you can put into a Cash Junior ISA and a Fund Junior ISA.
– Cash Junior ISA
Within a Cash Junior ISA, you are able to save certain amount of cash each year for your children and the interest will be compounded year on year and completely tax-free. However, the child will not be able to have access to the cash in a Cash Junior ISA until he or she reaches adulthood. You are able to transfer the cash held within a Cash Junior ISA into a Fund Junior ISA.
– Fund Junior ISA
Within a Fund Junior ISA, you are able to make equity-based investments such as bonds and shares up to a certain amount of money for your children. However, you are not able to transfer a Fund Junior ISA into a Cash Junior ISA. This does not mean that you cannot hold cash within a Fund Junior ISA, but you are likely to be charged by your service provider and the interest gained is likely to be taxed (as in a Fund ISA for adult).
Are my savings and investment safe?
The Financial Services Authority (FSA) has confirmed that everyone can save up to £85,000 within a deposit account with an authorised firm under the Financial Services Compensation Scheme. This means that your children’s savings in a Cash Junior ISA will be secured and protected by the Officials if it is under £85,000 if an authorised financial institution is in bankruptcy.
Due to the nature of Fund Junior ISA, your investment will go up and down in line with the performance of your chosen fund or the stock market. However, the level of risk you take with your investment tend to be in parallel with the level of return you could expect. There is no 100% guarantee that your investment will generate a return on your investment.
Where can I get a Junior ISA?
Many financial institutions have been expressed their interests in offering such a great financial product. The channel of distribution can be summarised as the follows:
– Banks and building societies
– Fund managers
– Online fund supermarkets
– Stock Brokers
– Independent financial advisors
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