Junior ISAs are four years old this week
Written on 4 November 2015
Junior ISAs (JISAs) were launched in November 2011 as a replacement for Child Trust Funds. Since then, £1.6 billion has been invested in total with most people (two-thirds) choosing to put the money in a cash JISA, according to figures from HMRC. The rest has been invested in stocks and shares JISAs. The average amount saved is just over £1,100.
Junior ISAs: what you need to know
Junior ISAs (JISAs) are tax-free (or largely tax-free) accounts for children. There are two types – cash JISAs and stocks and shares JISAs. Cash JISAs are just like savings accounts where you pay in money and earn interest on it. Stocks and shares JISAs invest in things like bonds, shares and investment funds. It is important to remember that the value of a stocks and shares JISA can fall as well as rise.
- You can invest up to the annual limit in a JISA for a child each tax year. The limit for 2015/16 is £4,080.
- Only the child’s parents or guardian can open a JISA but anyone can contribute to it.
- Interest earned in a cash JISA is completely tax free. Stocks and shares JISAs are largely tax-free (10% tax is automatically deducted on dividends).
- Your child’s annual allowance can be spread across both types of JISA or just one.
- Money saved in a JISA can’t be taken out until the child is 18 and then it is the child, rather than the parent or guardian, who has access to the money.
- Once the child reaches 18, the JISA automatically transfers to an ordinary ISA. This means the money can stay in a tax-free environment.
- If your child has a Child Trust Fund, it’s worth investigating whether you could get a better deal by transferring to a JISA.
- You can’t have a JISA as well as a Child Trust Fund.
Junior cash ISA rates
Coventry Building Society and Nationwide Building Society currently offer the highest-paying cash JISAs, according to Moneyfacts. They pay a variable interest rate of 3.25% before tax (which means the rate could go up or down) and accept payments from £1.
This is more than most other children’s savings account pay. Halifax’s Kid’s Regular Saver pays 6% before tax but there are restrictions on the account which mean the amount you can invest and earn interest on is limited.
Remember most children don’t have to pay tax on their savings. That’s because everyone, including children, can get their savings interest paid tax-free if their income is less than £15,600 in 2015-16. You can register to have your child’s interest paid without tax taken off by filling in an R85 form from your bank or building society.
However, be aware of the £100 rule which means if you, as a parent or guardian, give your child money which generates more than £100 of interest a year, you will be taxed on this as if it’s your income.
Saving for children
JISAs are just one way of saving for children. You can find out more about the other options and how they compare in our guide to saving and investing for children.
Unsure whether to save or invest for your children? Take a look at our guide, Save or invest?, to learn more about the pros and cons of each.