subject: A Safe Investment Opportunity For Grandparents - Junior Isas Explained [print this page] As a grandparent you may be looking at various options available which could allow you to help out your grandchildren, but there may be one option which you haven't considered, but which could prove to be one of the best possible.
Children's ISAs have been around for a while now, although for a few years the government ran a scheme called the Child Trust Fund, and as a result many grandparents and other family members and friends have turned their attention away from such financial initiatives.
The problem was that a Child Trust Fund was a financial investment option which parents could set up and maintain for their children, but which wasn't open to anyone else. Today however the CTF no longer exists as an option for children, with Junior ISAs representing the closest equivalent. But these children's ISAs offer several key benefits which as a grandparent may well be more appealing.
Although a Junior ISA cannot be opened by anyone other than the person or people who have legal Parent Responsibility (PR), they can be used by absolutely anyone. In most cases it will be the child's parents who have PR, but of course there are also situations in which a grandparent may have PR. In these cases it is naturally the grandparent who will be able to open a Junior ISA on behalf of the child, but even if you do not have PR, you can still help to maintain a child's ISA, even by yourself.
Once a child's ISA is opened, anyone at all can contribute towards it. For grandparents this opens up several possibilities, including making regular, monthly contributions, or making contributions at key occasions such as birthdays and Christmas for example.
The only limit is that over the course of a single financial year the contributions towards a children's ISA must not exceed 3,600, although from 2013 this is likely to change annually in line with inflation. It is also possible for each child to have two separate ISAs, as there are two different types. Each child can either have a cash ISA, a stocks and shares ISA, or one of each. If your grandchild has one of each then the cap of 3,600 applies across both accounts, although it doesn't matter how it is divided.
Some people prefer to invest a larger sum in the 'safer' cash ISA, whilst depositing a slightly smaller sum annually in the riskier but potentially more profitable stocks and shares ISA. So you might consider depositing 2,600 annually in the cash ISA, and 1,000 each year in the stocks and shares ISA, totalling 3,600 overall, just as an example.
In many cases parents find themselves stretched financially, and it is often the grandparents who are in the position of being able to help pave the way for a solid financial kick start for their grandchildren. Children's ISAs offer a great way of creating a very valuable nest egg which becomes available only once the child turns 18, and of course they're tax free.
However, it is important to shop around as rates vary considerably, with some at less than 3%, and others over 5%. A Junior ISA into which 3,600 is deposited annually could well result in generating over 100,000 by the time your grandchild turns 18, and as absolutely no one is ever able to access those funds apart from the child, and even then only when they are 18, you know that your investment is safe. If your grandchild's parents haven't yet opened an ISA for their child then this may well be a good time to suggest they open one for you to be able to use to contribute towards their child's future.
