subject: Make The Right Decision When Choosing A Junior Isa [print this page] There are many advantages to the Junior ISA, or Children's ISA, compared to the brief project the government ran called the Child Trust Fund. One of the many advantages is the fact that absolutely anyone can contribute towards a child's ISA. With the Child Trust Fund it was only the parents who were able to contribute towards their child's financial future, but with the Junior ISA there is no limit on who can contribute.
This means that for birthdays, Christmas and other special events anyone in the family can make a contribution towards the child's financial future, which in many cases helps to considerably improve the value of the investment.
It is important to remember though that whilst anyone can contribute towards the account there is still an annual maximum of 3600 per tax year. It is also important to bear in mind the fact that throughout a child's ISA investment the funds are completely inaccessible. No one is able to withdraw from the account, including the parents and the child.
Legally the only person able to ever withdraw from the children's ISA is the child himself or herself, and even then only when they turn 18. Because of the fact that a wider number of people can contribute towards the Junior ISA it is important to realise that the potential for a very solid investment sum is available, and over a period of up to 18 years paying even a modest sum on a regular basis can become a highly valuable sum which will certainly help your child when they face a whole blizzard of financial hurdles.
For this reason it is important to think about why you want to set up a Junior ISA in the first place. Knowing what you would like to think that the money will go towards will enable you to work out how much will be needed, and therefore how much needs to be invested on an annual basis between now and then.
Perhaps you may be thinking about helping your child get through their driving test and buying their first car, in which case a few thousand pounds will be all that is needed, and this can almost certainly be built up by making very modest contributions each year.
On the other hand if you are looking at providing your child with a rather larger nest egg, perhaps hoping to get them through university and allow them to put down a deposit on their first home, then it will be important to consider not only how much will really be needed, and therefore how much will need to be paid into the Junior ISA on a regular basis, but also exactly which type of ISA will be best.
As long as your child is eligible for a Junior ISA then they can either have one cash account, one stocks and shares account, or even one of each. If they do have one of each, the total amount contributed to both accounts must still not exceed 3600 per tax year.
So before opening an account on the part of your child think about what it is you would like the account to achieve for them, how much will therefore need to accrue, how much will need to be paid in, and how the two types of accounts compare in terms of achieving your long-term aims based on the amount you feel you can contribute regularly.
A cash Junior ISA is reasonably secure, reliable, and has low risk, whereas a stocks and shares or investment ISA may be a little riskier, but may also work harder in the long term for your money. This is why it is important to think right from the beginning what you want to achieve. 18 years is an awful long time for a single investment, and it's worth spending time making sure you make the right decision early on.
