Introduction To Junior ISAs
In case you’re wondering,
Junior ISAs are a new type of investment style for children, recently launched by the government. Designed to help parents save and invest as much money as possible.
Junior ISAs work by giving long term, tax-free savings account to children, access to tax-free interest and gains, meaning they won’t pay income tax (or capital gains tax1 ) when these savings are turned into an investment fund or used for higher education expenses at university later down the line.
With the help of their parents’ contribution, it becomes possible for them to have a nest egg that will last through college and use towards buying a property with enough time before it’s too late.
The main benefit is that youngsters can open an account from age seven onwards (younger). This means that they can contribute as early as possible and get the best start in life.
The most attractive feature is that Junior ISAs come with a government bonus worth up to £400, which means you’ll be able to invest more for your child’s future than ever before.
Unlike other savings accounts, it doesn’t have an expiry date or age limit, so it can stay open until 18 years old if needed- meaning even after reaching adulthood, there is still time for them to use this money towards their higher education fees or buy their first property.
There are two types of accounts available: one where parents put in monthly contributions (£100) and one without any contribution (£0). The downside to this is that you’ll only get a maximum government bonus of £25 for the no-contribution account.
To set up a junior ISA account, parents must first open themselves and then transfer funds into the junior version of itself when necessary. Withdrawals and deposits for children under 18-years-old also require parental permission before they occur (though there is no limit on account size).
Junior ISAs, like other range of investments (ISA products), is a tax-free investment vehicle.
The goal of the account is to help people save towards their future education or housing needs and offer an opportunity for parents to start investing in stocks at an early age.
Junior ISAs work the same way as other types of ISA products. Individuals 16 and over can open a Junior ISA account to save towards their first home or for education expenses.
But, unlike adult-only versions, they need parental permission before making any withdrawals.
The main difference between junior and regular ISAs is that children under 18 years old cannot make contributions themselves but must have them made on their behalf by parents or guardians – though there’s no limit on how much you put in this type of account (versus £20,000 in an adults’ equivalent).
There are also some differences with regards to withdrawal rules, which we’ll get into below.
What Are Junior ISA Rules?
There are a few rules that apply to Junior ISAs.
Individuals must reach their 16th birthday or over before they can open one, and the account requires parental permission for any withdrawals.
The main difference is that children under 18 years old cannot make contributions themselves but must have them made on their behalf by parents or guardians – though there’s no limit on how much you put in this type of account (versus £20,000 in an adults’ equivalent).
The withdrawal rules for Junior ISAs are also a little different.
And the good news?
Unlike adults’ accounts, withdrawals from junior ISA can only be made if the child has reached the 18th birthday or over and once they have passed the minimum age limit of their plan.
Who Is Eligible For A Child ISA?
The child must be under 18 and not yet in full-time education. If the child has already been accepted into their first year of university, they are no longer eligible for a Child ISA until they finish that course.
Are Child ISAs A Good Idea?
Child ISAs are a good idea for children who have grown up with the benefits of feeling financially independent.
This is because, to qualify, they must be 16 or over and not yet in full-time education – which means when their younger peers’ parents start saving on their behalf, this will provide them with an extra headstart.
Which Banks Offer Junior ISAs?
Junior ISAs are offered by most of the central UK banks, as well as some smaller institutions and building societies2.
Are Junior ISAs a good idea?
Junior ISAs are a better solution for children’s saving needs. They allow parents to save more, and they can be spent on their first home or education.
What's the benefit of a Junior ISA?
A Junior ISA is a great way to teach children about saving in the long term.
Is a CTF better than a Junior ISA?
A Junior ISA isn’t always better than a CTF. A lot of people are looking at the tax benefits, for instance. They also have different withdrawal rules: if you want to withdraw money from your junior ISA before they turn 18, it’s subject to income taxes and then a 25% penalty on top – but not so with a CTF.
Can grandparents set up a Junior ISA?
It’s possible, though there are complicated rules about what grandparents can do. It really depends on the age of the child and if they’re eligible to open an account for themselves.
The Junior ISA is changing childhood savings and long-term investment as we know it. Children are no longer limited to cash allowances or piggy banks– they now have access to their account that allows them to save, invest and grow their money, all while limiting the risk of loss within an acceptable level.