Building a pot of money for your child can go further than filling a pink, ceramic piggybank on the kitchen shelf. There are a range of financial products on offer to help fund your little one’s future goals, including Junior ISAs — complete with their tax-free allowance, ability to put the money into investments (as well as cash savings), and your peace of mind knowing this is safely locked away until they turn 18.
Here’s a rundown to compare Junior ISAs vs children’s savings accounts:
- What is a Junior ISA?
- What is a Child Savings Account?
- Benefits of Junior ISAs vs savings accounts
- Considerations of both
- Which is best for me and my child?
What is a Junior ISA?
Junior ISAs are a child’s version of an adult ISA which their parent or guardian opens and manages for them. They work largely the same as the grown-up counterparts, but with a few points of consideration, such as:
- A lower annual tax-free allowance than an adult ISA;
- A limit to how many your child can have open;
- And age restrictions around managing and withdrawing the money.
They are split into two types, Junior Stocks and Shares ISAs and Junior Cash ISAs.
Please keep in mind that tax treatments do depend on your individual circumstances, and the conditions mentioned in this article could change in the future.
Junior Stocks and Shares ISA
This is an opportunity to invest for your child on a tax-free basis.
Investing up to a certain limit each tax year, you can use digital investment platforms like Wealthify to let our team of experts to do this on your child’s behalf. Any profits that build over the years are reinvested to add to the overall value of their pot, with the hope of letting their wealth grow further.
When your child turns 18, all the money can be unlocked and will be free from them (or you) needing to pay any capital gains or income tax. It’ll become a mature ‘adult’ ISA at the stage and your child can make the decision to continue investing, transfer it, or withdraw it at that time.
And with Wealthify’s Junior Stocks and Shares ISA, in particular, you can select whether your child’s money is invested ethically (meaning it’s put into companies that are committed to having a positive impact). This is because we understand that your little one may grow up to have big plans for the planet’s future, as well as their own finances. You can also invest in a style that you’re comfortable with, from Cautious to Adventurous, and invite your family and friends to contribute to their Junior ISA too.
With a Junior ISA, capital is at risk and your child could get back less than invested.
Junior Cash ISA
This is a tax-free way to save money for your child, as the interest it builds helps to grow its overall value.
Similar to a traditional savings account for children, the Junior Cash ISA is a way to save up to a certain limit during each tax year.
The higher the AER% (annual equivalent rate) the more interest your child’s money should earn each year, but keep in mind any fees that may be applicable for having the account open as will eat into their savings.
Any interest that builds is added back to the total savings amount. When your child turns 18, the money can be unlocked and will be free from capital gains or income tax.
Note: Wealthify doesn’t currently offer a Junior Cash ISA. Our ‘Junior ISA’ product is a Junior Stocks and Shares ISA only.
What is a Children's Savings Account?
What it says on the tin! A traditional savings account that is specifically for a child. You’re likely to see these accounts with high street banks, and while they tend to have more flexibility around withdrawals, they are subject to tax (unlike Junior ISAs).
You can get easy/instant access children’s accounts, or ones that have a more fixed-term approach — known as ‘regular’ savings accounts. Sometimes these accounts can be managed by the child from their seventh birthday (but that’s not to say that you can’t sit down with your little one and explain how you’re managing their Junior ISA for them, to help them build their confidence with finances!).
But one thing to bear in mind is that the instant access options tend to have lower interest rates. Whereas the ‘regular’ ones are trying to encourage regular savings habits, meaning while they may not be as easy to withdraw from, they do tend to offer a better interest rate and may have a reduction in the interest rate if too many withdrawals happen in a year.
Junior ISA benefits vs children’s savings account
*Correct as of the 2024/25 tax year, but this could be subject to change in the future. This amount must be spread across both types of Junior ISA in any given tax year.
Children's tax-free savings
Junior ISAs come with tax-efficient benefits like we’ve mentioned — meaning that if you were to save/invest for them in a Junior ISA over their childhood years, you could have up to 18 years of profits built up that would be completely tax-free at the time they withdraw.
Child savings accounts are different in that the profits they make are taxable. However, each child gets a Personal Allowance when it comes to income tax, which is the same as an adult (£12,570 per tax year as of 2024/25, but subject to change in the future).
When a parent or legal guardian is saving for their child outside of a Junior ISA (and as such, not taking advantage of their own child ISA allowance), the money sat in that child savings account will be building interest.
And when interest earned goes over £100 in a tax year, the parent needs to tell HMRC, and it means the whole interest amount (not just the portion over £100) could be charged at the parent’s tax rate. This is not applicable if the money is gifted by someone else though — like other relatives, or family friends.
Junior ISA considerations vs children’s savings account
Junior ISA limits
Junior ISAs have many tax-free benefits when saving for your child, but that is capped at an annual allowance limit.
In the current tax year, this is set at £9,000, and that amount must be split across all Junior ISAs they hold — (not £9,000 per Junior ISA).
Many people use Junior ISAs to save or invest up to this limit, and will then, turn to a traditional children’s savings account to save any additional money. This means that the need to let HMRC know when the account earns more than £100 in interest in a tax year is further away.
Additionally, it’s worth noting that by saving/investing within a Junior ISA for your child, this money doesn’t impact your own ISA allowance of £20,000.
How many Junior ISAs can a child have
Your child can have a maximum of:
- ONE Junior Cash ISA;
- and ONE Junior Stocks and Shares ISA at any time.
But they can’t have two of each type. It’s also worth noting that they can’t have a Junior ISA and a Child Trust Fund (the scheme in place before Junior ISAs were introduced) open at the same time. But that said, you’re not tied to the current provider you have.
Can grandparents open a Junior ISA
While it isn’t possible for grandparents (nor aunts, uncles, or anyone else) to open a Junior ISA themselves, once the child’s parent or legal guardian has opened the account, anyone close to the child can contribute as long as the Junior ISA provider allows this (Wealthify’s does).
Can parents withdraw money from a Junior ISA?
No. The money inside a Junior ISA belongs to the child and is theirs to either withdraw or continue to build upon as soon as they turn 18. The money can’t be withdrawn before this time unless there are exceptional circumstances (if the child became terminally ill, for example, in which instance you should contact HMRC rather than the provider).
The parent or legal guardian will be acting as a manager for the child’s ISA until they turn 16, at which time the child can take over the management, or leave the adult to continue managing things until the child celebrates their 18th birthday.
While this may not be the best choice for everyone, there are positives for keeping the money locked up - particularly with a Junior Stocks and Shares ISA. Although there’s no guarantee of how the stock markets will perform, with investing, you’d hope to see growth over a long period of time and use the power of compounding to build the money further.
Junior ISA or savings account: which is best for me?
Building a nest egg for your child is a brilliant first step for opening them up to future financial independence — and educating them on money management at a young age is a gift that many people strive for.
So, deciding which type of provider and account type to go for can have a big impact on their experience.
Only you as their caregiver can make the final decision on how you think it should be managed, but some considerations to think about are:
- What’s your goal for them to use this money with? Further education, travelling, a car, and house deposits are on many people’s lists.
- Is it just for money they receive for gifts? Or will pocket money be building up more regularly?
- Are other family members keen to contribute too? Check whether the providers you’re looking at could support this.
- Would you prefer them to not pay tax unnecessarily? Junior ISAs are designed for tax-efficiency, if so.
- Do you like the idea of the money being locked away? Junior ISAs can’t be accessed until their 18th birthday.
- Are you looking for an investment opportunity? Junior Stocks and Shares ISAs can offer your child this.
If you’re leaning more towards Junior ISAs, check out our complete Junior ISA guide.
With a Junior ISA, your capital is at risk and your child could get back less than invested.
Your tax treatment will depend on your individual circumstances, and it may be subject to change in the future.
Wealthify does not provide financial advice. Please seek financial advice if you are unsure about investing.
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