A Junior ISA is a long-term, tax-free savings or investment account for a child under 18, that is opened by a parent or guardian on the child’s behalf. Each year, a maximum of £9,000 can be contributed to it. Any increase in its value is tax free as it is within an ISA wrapper, so at no point would tax need to be paid.
If family members were to set up a Junior ISA for a newly born child and put £9,000 in each year with an average return of 4% a year, by the time the child turns 18, their ISA would be worth more than £230,000.
Using a Junior ISA can be a good way to build a savings pot for younger family members. However, when the child turns 18, the account will convert into an adult ISA and the child is then in charge of the accumulated funds.
If you are concerned that an 18 year old may not be financially responsible, then saving for them through a Junior ISA would not be the right choice for you as they have control of the funds at that point.
Junior ISAs have two varieties – a Junior Cash ISA or a Junior Stocks & Shares ISA. These work in the same way that their corresponding adult ISAs do. If a Cash ISA is chosen, then interest is received on the money within the ISA. This interest rate may be fixed for a period of time, but it is more usual for it to be variable and move in a similar fashion to the Bank of England’s base rate of interest. If the Stocks & Shares ISA option is chosen, then the money within the ISA is invested, and grows as each of the Funds it is invested in does. (There is always the possibility of losing money with investing and so we would always recommend seeking professional assistance with investing.)
