A new 'Junior ISA' designed to help you save money for your child's future has been announced. We explain all you need to know about the accounts that will replace Child Trust Funds.
This article was published in October, 2010. Junior ISAs are now available - read our article: Junior ISA Regulations: FAQs to find out more.
In May 2010 the Coalition government announced plans to reduce payment to and then ultimately cancel Child Trust Funds in a bid to save money.
To encourage you to save for your child’s future the government has now unveiled plans to replace the Child Trust Funds (new CTFs cannot be opened after December 31st 2010) with a ‘Junior ISA’.
What do we know so far?
Full details of the Junior ISA have yet to be revealed, however here is some of the information that we already know.
Firstly, the Junior ISA will be tax free in a similar way to the redundant Child Trust Funds to maintain some of the benefits of saving for your child’s future.
Secondly, any money you pay into a Junior ISA will be locked up until the child reaches the age of 18.
Again this will work in a similar way to the out-going Child Trust Funds but is significantly different to adult ISAs where you can have instant access to your savings.
Thirdly, there will be an annual limit to the amount you can save into a Junior ISA.
The level is yet to be announced by the government but it is likely that it will be split across shares and cash meaning you can manage the amount of risk taken with your child’s money.
Finally and perhaps most importantly there will be no cash contribution from the government to Junior ISA saving accounts.
This is the major difference between the planned Junior ISA and the now defunct Child Trust Funds.
Previously you could receive a voucher for up to £500 from the government to open a Child Trust Fund depending on your circumstances.
When will the account be available?
The exact start date for the new Junior ISA is yet to be announced, but it is expected to be available from autumn 2011.
The government has also announced that it will back date eligibility for the new Junior ISA to include all children born after January 2011.
This is being done to make sure no child misses out on having a tax free savings account once the Child Trust Funds are stopped in January 2011.
What if my child is born before January 2011?
If you want to start saving for a child born before January 2011 then they will qualify for a Child Trust Fund account.
If you already have a Child Trust Fund for your child then you can continue to save into it until your child reaches the age of 18. At present there are no plans to convert existing Child Trust Funds into Junior ISAs.
For more information on the outgoing Child Trust Funds you can read our guide Child Trust Funds: An Update.
