What is a children's investment ISA?
You can open an investment ISA for your child at any time. But why would you consider this type of account over any other?
If there is one thing children have in abundance it’s time. This marries nicely with investments, given the ideal is to hold on to them for at least five years to maximise your chances of making money from them.
It’s a good reason to consider taking out an investment ISA, also known as a stocks and shares ISA, for your son or daughter, especially with inflation soaring above the returns available on cash accounts.
Compare our best junior ISAs
How do children’s ISAs work?
You can open a junior ISA for your children before they reach 18. The only stipulations are that they are UK residents or a child of a Crown servant, such as a member of the armed forces, stationed overseas. In the latter case, they must be dependent on their parent or guardian for their care.
What’s the junior ISA allowance?
The current junior ISA allowance is £9,000, which you can put in a single junior cash ISA or investment junior ISA, or split between the two. The main benefits of having savings in ISAs are as follows:
With a cash junior ISA, there is no tax to pay interest earned on the money saved in the account
With a stocks and shares Junior ISA your child’s cash is invested and they won’t pay tax on any returns or dividends received
Children get ISA access at age 18, their decisions from age 16
In both cases, your offspring can’t access money in their account until they are 18 when it automatically rolls over into an equivalent adult ISA.
At this point they could, of course, look to reinvest the money in an adult cash ISA or investment ISA, as well as in an innovative finance ISA and lifetime ISA.
Although your child can’t touch the money until they reach 18, they can decide what they want to do with their ISA holdings from 16. At this age, they’re free to move some or all of their money between cash junior ISAs or investment junior ISAs.
They can also open an adult cash ISA alongside a cash junior ISA due to a quirk in the rules, giving them a total annual ISA allowance of £29,000 at ages 16 and 17.
If they’ve got a lot saved or invested this could be the time to speak with an independent financial adviser. Just be sure to involve your child in this process, it’s their money after all.
3% annual interest rate added in
Can you transfer between ISAs?
The simple answer is yes. You should review the ISA market twice a year to see who is offering the best deals. The most obvious time to do this is just before the start of the new tax year, which occurs on 6 April.
Six months or so later, around November is another good time to review what’s on offer, as this is when the Chancellor of the Exchequer delivers his Autumn Budget.
When it comes to transferring between investment ISAs take time to consider your options. Unlike shifting money from one cash account to another there are charges associated with relaying stocks and shares from one provider to another.
You can expect to be landed with a fee of up to 3%, perhaps more, to set up a new investment ISA. Should you decide to move your child’s holdings to another investment ISA you can expect the transfer process to take no more than 30 days.
If your child was born before January 2011 they may have a Child Trust Fund, a precursor to ISAs. It’s worth checking whether your child has one and arranging for the money to be transferred to an ISA, which will be much more competitive.
Compare our best junior ISAs
How safe are Junior ISAs?
If you, or rather your child, is fortunate they could see their Investment ISA holdings prosper over the course of their young life. Save £9,000 each year and the capital investment will hit £90,000 in a decade, and that’s before interest earned is added.
This handsome total exceeds the £85,000 ceiling that’s protected under the Financial Services Compensation Scheme (FSCS).
This scheme exists to protect your savings and investments if your account provider goes bust. If your child’s ISA holds anywhere near £85,000 consider transferring some of the total to another ISA operated by a different firm.
What are the best investment junior ISAs?
If your taste buds have been whetted then now’s a good time to take a peek at the best investment junior ISAs. Should you be new to the game, it’s a good idea to focus on charges.
Investments aren’t like savings – you don’t just plop cash in an account and let interest accumulate. With investments, you need a savvy fund manager to navigate your money through the choppy seas of stock exchanges, which comes at a price.
You can expect to pay from 0.60% to more than 3.00% in management fees on a junior investment ISA, and around the same for a transfer.
Of course, their fee is partly dependent on the ISA making money. So, you can rest easy in the knowledge that your fund manager is doing all they can to maximise the fund’s growth.
With this in mind, here’s a peek at three of the best junior investment ISAs around at the moment:
Our best junior investment ISAs
Our editors pick these deals by weighing up factors such as the minimum initial lump sum and/or monthly deposit, as well as the choice of funds available.
Capital at risk.
“This Junior ISA has been a Which? Recommended Investment Platform for the past four years so it is worth looking into. Minimum monthly investment is also £25 so you can start saving little by little. However, bear in mind the initial deposit is £500. ”
Capital at risk. Junior ISA rules apply.
“This ISA is a good option if you want a low-cost way of investing for your child’s future. The initial deposit is £100. You can then add monthly contributions starting from just £25. You can manage your family’s account in one place via the website or app.”
Capital at risk. ISA & Gift rules apply.
“If you would like to be rewarded for investing in an ISA, Scottish Friendly will match your first £50 when you invest from £10 a month. It has one of the lowest initial deposits at only £50, but there is an exit fee if you withdraw in the first 5 years. ”