subject: Saving For Your Child - What Is A Junior Isa? [print this page] In November of 2011 the government introduced a new system that parents could use to save for their children - the Junior ISA. Standard ISAs (or Individual Savings Accounts) were introduced in 1999 and can be either cash ISAs or stocks and shares ISAs. A cash ISA, in general, usually has a higher rate of interest than a normal saving account - the interest gained is also tax free. A stocks and shares ISA is where the funds are held in stocks, shares and investments - with this type of account it is possible that your funds can go down as well as up. These accounts, unlike cash ISAs, are not completely tax free. The junior ISA is, in effect, an individual savings account for your children.
How do Junior ISAs (JISAs) work? They can be opened by the parents or legal guardians of a child who is under sixteen. Once a child is over sixteen they can open a JISA themselves but their parents can still choose to open one on their behalf if they prefer. Once the JISA is opened in the child's name, parents, friends or other family members can add money to the account. However, unlike with an adult individual savings account, the money that is put into a Junior ISA is locked away and cannot be taken out until they turn eighteen. When your child turns eighteen they can choose what to do with the money. They can, if they wish, take it out and put it in a different type of account. If they choose not to do anything with the money the JISA will automatically become an adult ISA.
Saving for your children's future is always important. There are numerous things that the Junior ISA savings could be used for. Their first car is always a popular choice (and the insurance to go with it!). But other alternatives could be school fees or university fees - especially now that the majority of universities are choosing to charge up to 9,000 a year, which will leave many graduates with a sizeable chunk of debt. The savings could also be used for the payment of a wedding, depending on how big an event they end up having! A very long term option is to use the savings to complement a pension scheme in retirement. As this investment is destined to remain locked away for a few decades it takes advantage of compound growth.
Are there any restrictions on the Junior ISA? The most you can put into an account is 3,600. A child may have both a cash ISA and a stocks and shares ISA in their name but the limit of 3,600 applies to both. For example 1,600 can be invested in one account and 2,000 in the other, adding up to a total of 3,600. All children that were born before September 2002 or after 3rd January 2011 are eligible for a JISA. If your child was born after 1st September 2002 and before 3rd January 2011 they fall under the Child Trust Fund scheme that was launched in 2005 and ended in 2011. A Child Trust Fund is very similar to a Junior ISA as you can deposit up to 3,600 a year into the account for your children. If you did not open a CTF for your child it is likely that it was opened their behalf by the government. Unfortunately if your child was eligible for a CTF they cannot open a Junior ISA or transfer funds to one.
A JISA can be a very useful tool for saving money for your children's future. The tax free nature of the accounts and the decent interest rates are useful for long term investments, especially if the savings are for your child's retirement. With university fees increasing, many parents want their children to have the education but not the debt and the JISA is a good step forward for them.
