20th May 2015 at 10:26am
Choosing how to save for a child’s future involves making choices about the options available, including children’s bank accounts, Child Trust Funds and pensions. The Junior ISA, which was launched in 2011, is one of the newer options.
Tax efficient and straightforward, the Junior ISA – or JISA as it’s often called – is a way of saving for children under the age of 18. If you open a JISA for a child, you can save up to £4,080 a year into cash or investments in the 2015-16 tax year, with any investment income and gains free of tax.
The JISA is taking over from ‘old’ Child Trust Funds which were available for children born between 1 September 2002 and 2 January 2011. New rules which came into effect this April allow parents to transfer a Child Trust Fund, if they have one, into a JISA. While both are tax-free savings accounts for children, there’s usually more choice with JISAs.
The choice between stocks and shares or cash in a JISA can depend on the age of your child and your preference. If they’re very young, stocks and shares will give more potential for growth and having more years to save can manage any stock market volatility.
On the other hand, if your child is in their teens and you’re saving into a JISA for a few years at most, cash might be a better option to avoid any stock market ups and downs – but any gains will likely be modest and inflation can erode the value of those savings.
One thing to bear in mind is that the savings belong to your child, who can access their money at age 18 and spend it how they want to – the savings are theirs, not yours.
A JISA does lock savings away, so it’s also worth considering having a children’s account for small amounts of money which you can access as and when you need to.
Whatever you choose, taking the first steps towards saving for your child’s future could help set them up for life.
Find out more information on Junior ISAs on www.gov.uk
This blog is not financial advice. A pension and a stocks and shares ISA are investments. Their value can go up and down and may be worth less than you paid in. Laws and tax rules may change in the future. This information is based on our understanding at May 2015.