Young people can now save for their future tax-free through the Junior ISA scheme. But not all children are eligible - here's what you need to know.
What is a Junior ISA?
Junior ISAs (Individual Savings Accounts) are a new tax-free saving scheme designed specifically to help young people, and their families, save for their future now that Child Trust Funds are no longer available.
When is the Junior ISA launch date?
Junior ISAs became available on 1st November, 2011, so providing your child is eligible, you can start taking advantage of the opportunity to make tax free savings for their future right away..
Who will be eligible for a Junior ISA?
Any child under the age of 18 and resident in the UK will be able to open a Junior ISA - providing they don't already have a Child Trust Fund.
In practice this means that only children born before September 2002 and after 3rd January 2011 will be eligible to open a Junior ISA.
As things stand, children that already have a Child Trust Fund will not be able to open, or transfer their CTF savings to a Junior ISA. However, this may be reviewed in the future.
How much can you save in a Junior ISA?
Initially the Junior ISA limit has been set at £3,600 per tax year (6th April - 5th April).
This will be fixed until April 2013 after which time it will increase in line with the Consumer Price Index measure of inflation.
The annual contribution limit for Child Trust Funds will also be increased to £3,600 from the start of November 2011 to match.
Can a child have more than one Junior ISA?
Each child will be able to hold a maximum of two Junior ISA accounts at any one time - one for cash-based saving and one for investing in stocks and shares.
It will be possible to pay into one Junior Cash ISA and one Junior Investment ISA each tax year providing the total amount saved doesn't exceed the £3,600 annual limit.
However, although it won't be possible to open new Junior ISAs for your child each tax year, you will be able to transfer funds in a Junior ISA to a different provider as and when you see fit.
It will also be possible to transfer funds that are in a Junior Cash ISA into an Junior Investment ISA, and potentially vice versa.
Can you access Junior ISA savings?
Any money saved in a Junior ISA will be ‘locked in’ until the child turns 18.
This is designed to encourage parents and children alike to save for the child’s long term future, perhaps paying for university tuition or a deposit on their first home.
However, it does mean that you need to carefully consider whether you're likely to want access to any money you save for your child before you pay it into a Junior ISA account.
Who can open a Junior ISA?
Only parents and legal guardians will be able to open a Junior ISA for their child.
They will also be the only ones entrusted to manage these accounts until their child turns 16 and takes control of their Junior ISAs themselves.
However, anyone can contribute to a child's Junior ISA (including grandparents, relatives & friends) as long as the amount they pay in doesn't exceed the child's annual tax free limit.
What happens when a child turns 18?
Once a child reaches the age of 18 they will finally be able to access the money saved in their Junior ISAs and draw on it should they wish.
Parents won't have any control over whether their children spends, or continue to save the money in their Junior ISA - this is also something you should consider if you're looking at the best way to save for your child's future.
Providing a child doesn't empty their Junior ISAs of funds and close their accounts on the day they turn 18, the accounts themselves will automatically become adult cash ISAs and investment ISAs and be governed by adult ISA rules instead.
Where can you get a Junior ISA from?
Banks, building societies and other savings account providers all offer Junior ISAs.
We list details of all the Junior ISAs available in our Junior ISA comparison table so that you can easily compare the options and returns available and make an informed decision about which account is right for your child's savings.
Will the government contribute anything?
Unfortunately, unlike Child Trust Funds, the government won't be offering any money to kick start a child's Junior ISA savings. However, any money paid into a Junior ISA will remain tax free.
