We all want the best for our children, and a little nest egg can mean the world. So, it’s great news that the chancellor announced an increase to the limit of Junior ISAs in the Autumn Statement.
From 6 April 2017, you’ll be able to deposit up to £4,128 (currently it’s £4,080) into a Junior ISA. If your kids don’t yet have any savings accounts or a Junior ISA and you want to find out what it’s all about, then here’s what you need to know.
A Junior ISA is just like a grown-up one, it’s a long-term savings account that’s tax free (yep – tax free). Your child is eligible for one if they’re under 18 and live in the UK. There are two types of Junior ISA – you can have both but the limit is the same across both types:
- a cash ISA where you deposit money into it like a savings account
- a stocks and shares ISA, where your money is invested in certain shares and you won’t pay tax on any growth or dividends you get
With a stocks and shares ISA, it’s important to note that the value of the ISA can increase and decrease according to what the stock market does – so if you’re not a dedicated follower of bulls and bears then a regular cash ISA might be your preferred choice.
Your child can have one of each type of Junior ISA and once they turn 16 they can manage the account themselves. If your child is under 16 then as long as you have parental responsibility, you can manage the account – but the money belongs to the child (so hands-off). Withdrawals can’t be made by the child until they turn 18.
If you have a 16 or 17-year-old, then they also have the option of opening an adult ISA – so there’s even more potential for tax-free savings.
If you’ve got a Child Trust Fund (the scheme is now closed so you won’t be able to open a new one), then you won’t be able to open a Junior ISA. You can, however, transfer the money in the trust fund into a Junior ISA; or you can continue to put money into the trust pot instead – it’s entirely up to you.
But what’s so great about a Junior ISA – won’t a regular kids savings account do the same job? You won’t pay tax on any interest earned on most kids’ savings accounts, but if your child’s savings earn more than £100 in interest and the money deposited comes from parents then the account may be liable for tax. A Junior ISA removes all the ifs, buts and maybes when it comes to tax liability because there is none – simples.
An ISA is also a good move because the money’s locked into the account and can’t be accessed until the child becomes a grown up at 18 – so there’s no temptation that it can be raided to pay for an all-inclusive family holiday.
ISAs aren’t for everyone though, regardless of whether you’re a grown-up or a child. But if you like the idea of saving for yourself, then take a look at what savings accounts or cash ISAs are available.
Even if you think you can’t save much – you might surprise yourself. Just putting a couple of quid away every week will soon add up; it might not make you millions, but you’ll have more than what you started with – what’s not to like.