Junior ISAs

Kids are expensive and bringing one up costs an average of £230,000. With that in mind, it’s easy to question where on earth you’d find extra money to put into an ISA for them. But a little bit here and there all adds up and by the time they get to 18, the money that’s been set aside could help them buy their first car.

What’s the difference between a Junior ISA and a grown-up ISA?

A Junior ISA is just like a grown-up one, it’s a long-term savings account where any interest you earn is tax free (yep – you read that right, tax free). The amount you can put into a child’s ISA is smaller than the allowance for an adult – for the financial year 2017/2018 the Junior ISA limit is £4,128.

There are two types of Junior ISA available:

  • 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.

You can open one or both types of ISA but bear in mind that you’ll only be able to deposit up to the total tax year allowance between them (this year its £4,128).

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.

If you have parental responsibility, then you can open a Junior ISA on behalf of your child so long as they are under 18 and live in the UK. Sixteen and 17 year olds can open their own Junior ISA as well as a regular grown-up ISA (where available) so there’s some serious interest earning potential.

Money in a Junior ISA can only be withdrawn by the child when they turn 18, so you won’t be able to raid the children’s savings for the family holiday.

What’s the difference between a Junior ISA and a Child Trust Fund?

The Child Trust Fund scheme is now closed so you won’t be able to open a new one. But, if you already have a Child Trust Fund, then you can transfer the money into a Junior ISA. Alternatively, you can carry on putting money into the fund – it’s entirely up to you, but bear in mind that you can only put in £4,080 a year into a Child Trust Fund (you can however, roll over any unused amounts into the next year).

Why is a Junior ISA so great?

Like with all ISAs, any interest earned in a junior one is completely tax free. But aren’t kids savings accounts tax free too, we hear you cry? Well, yes, they are – but only up to a point – 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.

Should I open an ISA for my child?

ISAs aren’t for everyone and if it feels like too much of a commitment but you still like the idea of saving a few bob then take a look at what savings accounts are available for you to save money for your child.

Even if you think you can’t save much, don’t be put off, you might surprise yourself with how much you can put by. Just a couple of quid every week will soon add up; it might not make you millions, but you’ll have more than you started with – what’s not to like?

All information correct as of 31 March 2017.

Looking for a Quote?

Compare saving accounts in seconds and start saving

get a quote