You can save on behalf of your child with a tax-free Junior ISA and build up a pot of money ready for their 18th birthday. Here is what you need to know before you apply.
If you want to give your child the best start it makes sense to start saving what you can as early as possible, and a Junior ISA is a good starting point. While what you save might not see them through university debt-free or cover the deposit on a first home on its own, it’ll help.
A Junior ISA is a tax-free savings account which is only available for young people.
There are two types:
Cash Junior ISA: a deposit-based account available in banks and building societies.
Stocks and shares Junior ISA: a vehicle for you to invest your child's savings in the stock market.
Each eligible child can only have one cash Junior ISA and one stocks and shares Junior ISA.
Any child up to the age of 18 living in the UK can have a Junior ISA. Likewise, any child can be eligible for one if their parent or guardian lives outside the UK and is a Crown servant (in the armed forces or diplomatic service, for instance), or the child is dependent on you for care.
If your child already has a Child Trust Fund they cannot open a Junior ISA as well, but they can transfer it into a Junior ISA. If you're not sure whether your child has a Child Trust Fund, visit the HMRC website to find out.
Up to the maximum Junior ISA allowance, which is £9,000 in the 2021/22 tax year.
The allowance resets at the start of each new tax year, meaning you can add a new annual allowance to your child’s Junior ISA until your child turns 18.
If you open a cash Junior ISA and a stocks and shares Junior ISA you have to make sure you do not collectively exceed the Junior ISA allowance each tax year, as the allowance is shared over both types.
For example, this means if you pay £6,000 into your Junior ISA, you can only pay in a further £3,000 into a stocks and shares Junior ISA if you want to use the full annual allowance
Anyone can pay into a child's Junior ISA account, as long as they have the correct account details (sort code, account number and reference number, if applicable).
Unfortunately, unlike Child Trust Funds, the government will not contribute any money to help you save into a Junior ISA.
Who has the authority to open a Junior ISA depends on the age of the child:
If they are under 16 years old: the parent or guardian needs to open the Junior ISA on their behalf.
If they are 16 or 17 years old: they can open a cash Junior ISA themselves, but a stocks and shares Junior ISA would need to be opened by their parent or guardian.
If you open a cash Junior ISA on your child’s behalf it will automatically switch into their name when they turn 16, but they will not be able to access the money until they turn 18.
Until they reach 16 years old, you will be responsible for the money in their Junior ISA.
Your child can only have one cash Junior ISA and one stocks and shares Junior ISA.
No. Money put into a Junior ISA stays locked away until your child turns 18. At this point, the Junior ISA will turn into an instant access ISA in your child's name, meaning they can make deposits and withdrawals.
The only exception is in the tragic circumstance of a child dying or receiving a terminal diagnosis. More information about this can be found on the government’s website.
Most banks and building societies offer a cash Junior ISA that can be opened in branch or online. Stocks and shares Junior ISAs are also offered by banks and building societies, as well as by online providers, such as investment firms.
As with any other financial product the interest rate you can earn, or the fees and other terms attached to it will vary between providers’ offerings. This means it makes sense to shop around before opening a cash Junior ISA or a stocks and shares Junior ISA.
Money held in a cash or stocks and shares Junior ISA is covered by the Financial Services Compensation Scheme. This means if the bank, building society or credit union goes bust the FSCS will pay up to £85,000 of the money held in the account. Incidentally, the money is transferred to another Junior ISA rather than cashed.
Stocks and shares Junior ISAs will invest your money in the stock market, which means the investment is always at risk of fluctuations that could see its value fall. For this reason, it makes sense to get financial advice before opening one. Also, given the risks that come with investments, it’s usually thought of as a longer-term option, for children who have at least five years to go before they can access their ISA.
Just as you can transfer money held in a Child Trust Fund to a Junior ISA, so you can move a child’s savings between one Junior ISA to another that accepts Junior ISA transfers (not all do).
If you find a better interest rate with another savings provider then you can ask them to transfer your Junior ISA for you. However, try to avoid transfers from a fixed term or notice Junior ISA, as you’ll incur a penalty that could wipe out any interest and even some of the capital value of the account.
Finally, it’s important to note that you can transfer a cash Junior ISA into a stocks and shares Junior ISA, and vice versa, it’s just not possible to transfer a Junior ISA to an adult ISA before they turn 18. You can find out more about how to transfer ISAs here.