If you’re reading this, chances are you already know that a Junior ISA is an Individual Savings Account that lets you save up to £9,000 every year for a child.
But when it comes to deciding whether it’s right for your little one, you’ll probably want to learn more about all the Junior ISA benefits first.
And, from tax efficiency to financial education, this blog will help you explore not only the pros of a Junior ISA, but the considerations before opening one, too.
What are the benefits of a Junior ISA?
Whether you're opening a Stocks and Shares ISA (where your child's money is invested) or Cash ISA (where your child earns a rate of interest), a Junior ISA comes with the following benefits:
- It’s tax-efficient, with no tax to pay on any interest or returns.
- The money in a Junior ISA can’t be accessed until the child turns 18.
- There’s no capital gains or income tax to be paid when they do turn 18.
- Anyone can contribute to your child’s Junior ISA.
Please note: The tax treatment of your savings will depend on your individual circumstances and may change in the future.
Now, let’s explore some of these Junior ISA benefits in more detail.
Junior ISA tax benefits
With no tax to pay on any interest, dividends, or capital gain, one of the biggest benefits of a Junior ISA is its tax efficiency.
Coupled with the fact you can save up to £9,000 in a Junior ISA every year (a figure known as your annual allowance), it’s easy to see why they’re such a popular choice for growing wealth from a young age.
A couple of things to note on the annual allowance, however:
- It’s subject to change in future tax years.
- Just like a Stocks and Shares ISA or Cash ISA, the allowance resets on April 6th each year.
- Because the £9,000 allowance belongs to the child, it doesn’t affect your own annual adult allowance of £20,000.
What’s more, if a parent or grandparent wants to leave a child some money when they pass away, a Junior ISA lets them gift it without needing to pay inheritance tax.
A good way to educate children about financial wealth
Even though the money within it is locked away until they’re 18, a Junior ISA can still be an invaluable financial education tool, teaching your child about the basics of:
- Saving
- Lump sums
- Interest rates
- Investing
- Taxes
- Financial planning
The money is locked in
With a traditional savings account, there’s always the ability – and potential temptation – to dip into the money. With a Junior ISA, however, any money is locked away until the child’s 18th birthday, making it a more consistent way to build them a lump sum.
Anyone can contribute to a Junior ISA
As a parent or guardian, raising a child is tough enough as it is. But when you add trying to secure their future wealth to the mix, it becomes tougher!
Thankfully, family and friends can contribute to a JISA, helping you ease that financial burden — and ensure you’re never short of birthday or Christmas present suggestions for your little one!
A Stocks and Shares Junior ISA can help beat inflation
Although there are never any guarantees with investment performance – and you could get back less than you put in – a Junior Stocks and Shares ISA could provide better long-term, inflation-beating returns than a traditional savings account (or Junior Cash ISA, for that matter).
This is because your child’s money isn't restricted to an interest rate; instead, it’s invested in the stock markets, giving it the opportunity to grow beyond that.
You can transfer a CTF to a JISA
Although new Child Trust Funds (CTFs) can no longer be opened, existing accounts —originally established as part of a UK government initiative for children born between 2002 and 2011— can be transferred to a Junior ISA. Under the CTF scheme, the government contributed funds to these accounts, which became accessible to the child when they turned 18.
You might consider transferring a CTF to a JISA if you:
- Want your child’s money to start being invested
- Have found a provider with cheaper fees
- Find a Junior ISA easier to manage
Ethical Junior ISA
Certain providers – including Wealthify – provide an Ethical Junior ISA, giving you the chance to invest your child’s money in organisations committed to having a positive impact on society and the environment.
So, if you’re looking to create a better future for your child and the world in which they grow up, then an Ethical Junior ISA could help you achieve both. You can learn more about ethical investing here.
Junior ISA considerations
As with all financial products, it’s crucial to understand every aspect of a Junior ISA (not just the benefits) before opening one. Some of these key considerations include:
- Contribution limits
- Potential investment loss
- Age-based restrictions on access
Junior ISA contribution limits
As a result of the annual allowance, a Junior ISA only lets you save up to £9,000 per tax year. If you ever want to save more than that for your child, you’ll need to open a separate savings account (until your annual allowance resets the following year).
Junior Stocks and Shares ISAs can lose capital
Think of investing your child’s money in the financial markets as a coin, funnily enough. On one side of that coin, you've got the potential to enjoy returns that go beyond fixed or variable interest rates. On the other side, however, the ups and downs of investing mean you could also get back less than you put in.
That’s why investing your child’s money in a Junior Stocks and Shares ISA is a long-term commitment — where patience is key.
Junior ISA withdrawals
On the subject of patience, don’t forget that the money in a Junior ISA is locked away until your child turns 18. So, if you think they’ll want or need to withdraw it before then, you might want to consider a different type of savings account (although there’s nothing stopping you having a Junior ISA at the same time).
Junior ISA eligibility
As a parent or guardian, you can open a Junior ISA for your child if they:
- Are under the age of 18
- Live in the UK
- Don't already have a Child Trust Fund
If they do have an existing Child Trust Fund, that can be transferred to a Junior ISA (a Junior Stocks and Shares ISA, if you’re transferring to Wealthify).
It’s also worth noting that grandparents can't open a Junior ISA.
Is a Junior ISA right for my child?
By now, you should hopefully have a clearer idea of the Junior ISA benefits on offer to your child. To recap, however, a Junior ISA might be right for your child if you’re:
- Looking for a long-term, tax-efficient way to save money for them
- Wanting to put away no more than £9,000 a year
- Happy with them not having access to that money until they turn 18
If all the above boxes are ticked and you specifically want a Junior Stock and Shares ISA for your child, then opening one with Wealthify is easy! All you have to do is:
- Choose your Plan.
- Take our Suitability Quiz.
- Let us build and manage everything for you!
Simply head to our dedicated Junior Stocks and Shares ISA page to get started.
With investing, your capital is at risk. Please remember the value of your investments can go down as well as up, and you could get back less than invested.
Wealthify does not provide financial advice.
Please seek financial advice if you are unsure about investing. Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
