A Guide to Junior ISAs

Chapter 01

What is a Junior ISA (JISA)?

A Junior ISA, aka a Junior Individual Savings Account, is a tax-free account designed so you can save more money for your children while keeping it tax efficient. In exchange, any money put in a Junior ISA gets locked away and can’t be touched until your child turns 18. So Junior ISAs are great if you’re looking long term, and don’t want to pay tax on any interest or investment gains.

What are Junior ISAs best for?

Nest Egg

Building a nest egg for their first flat or longer term future (c. 20+yrs)

Graduation Hat

Tuition fee saving (c.10 years)

Chapter 02

How exactly do Junior ISAs work?

Only a parent can open a Junior ISA for their child – but afterwards anyone can contribute, from grandparents and godparents to aunts, uncles and family friends.

Junior ISAs come in two ‘flavours’ depending on what you want to put inside – ‘cash’ Junior ISAs and ‘stocks & shares’ Junior ISAs.

The cash version works just like an ordinary savings account, where you get paid interest either every month or every year. The only differences are that you can’t take any money out until the child turns 18 and you won’t have to pay any tax on the interest.

Meanwhile with the stocks & shares version, you invest money for your child in the stock market. Again, money inside the Junior ISA is locked away until the child’s 18th birthday and it grows tax-free. Think of an ISA like a bag to protect your money from tax. You’ll still need to choose what investments to put inside.

piggy bank

You will benefit from stock market growth 😀 but will also suffer if it drops ☹️. Technically, it’s a riskier option than a cash Junior ISA, because you could end up with less money than you put in. However, over the long term, returns from the stock market have been higher than on cash savings.

You can choose to open a cash Junior ISA, a stocks & shares Junior ISA, or one of each, and you can move money between them at any point. People can pay up to a certain limit into a Junior ISA each tax year – currently £4,260 for the year between April 6, 2018 and April 5, 2019 and rising to £4,368 for the year afterwards. It’s entirely up to you how to split the limit between cash and stocks & shares Junior ISAs, just make sure that if Grandma’s feeling particularly generous, you don’t blast through the annual limit.

When your child turns 18, their Junior ISA automatically turns into an ordinary ISA. They’ll be allowed to save up to £20,000 each year, but they can also whip money out too.

graph up
Chapter 03

Who can use one?

Expert view

“We pay into Junior investment Isas every month for our children because investing in the stock market has significantly more appeal than leaving their money in a savings account where it would earn nothing after inflation had taken its cut.“Over more than 15 years, we’re confident they will see significant growth, and can afford to choose more risky funds. Our aim is to give them a great start to their adult life, whether they want money for a deposit on a house, university costs or some travelling.”

Chapter 04

Things to consider before getting a Junior ISA

1

What happens when they’re 18?

At 18, the money is theirs. Short pause to consider whether they might blow the money on fast cars and holidays, rather than worthy causes like uni fees or a deposit on their first home. Looking on the bright side, your child may also engage more with their finances, knowing the money belongs to them. More than 90% of Stocks & Shares Junior ISAs at Hargreaves Lansdown, the money manager, transfer over into adult ISAs. If you’d rather keep control of the money, earmark some of your own £20,000 ISA allowance towards saving for your offspring.

2

Could they earn more interest on an ordinary savings account?

If you want to stick with cash, remember ordinary accounts also pay interest without tax taken off, not just Junior ISAs. So if an ordinary savings account or savings account specially for children pays better interest than a Junior ISA (and sometimes they do) it makes sense to look elsewhere. But watch out for bigger balances. If your child is likely to earn more than £100 interest a year on money from a parent, and you earn a lot in interest yourself, then your child could be better off with a Junior ISA. See more details here: www.gov.uk/savings-for-children

3

Can you lock the money away for that long?

If you might want to dip into your child’s savings before they reach 18, look elsewhere. Check out our Primer on Saving for Children or use your own ISA allowance.

4

Can you lock away money for even longer?

If you’re looking way ahead, how about starting a pension for your child? You can put up to £2,880 a year into a pension for a non-taxpayer, and the Government will top it up to £3,600. Boy will that money roll up by the time they hit 57, at the earliest. (You may think that’s better than 18!)

Expert view

“Junior Isas will mostly be used as a long term investment, because children can’t access them until they are 18, so it’s worth exploring investing via a Stocks and Shares Junior ISA to boost potential returns. If so, you have to decide whether you want to manage the ISA or get someone to manage it for you. If you want to pick from a range of funds someone like Hargreaves Lansdown will appeal, but if you’d like someone to manage if for you cheaply, then consider a company like Wealthsimple, a robo adviser.”

Rooster Summary

A great option if you want savings or investments to grow free from tax, you can tie up the money till they’re 18 - and you’re happy the money ends up in their name. If they’ve been using RoosterMoney we’re sure they’ll be super money savvy by then :)

Chapter 05

Other helpful bits & bobs