A Junior ISA (JISA) is a way to save for your children and earn tax-free interest. It’s a tax efficient way to put money away for university fees, a first car or to give your child a head start in saving towards a house deposit.
The money you save is locked away until your child is 18, so it’s important to be aware that it cannot be accessed by you or them until that point. When your child turns 18, the money will technically belong to them so you will need to educate them on how best to use it so it’s not squandered.
JISAs have replaced Child Trust Funds (CTFS) as a tax efficient way to save for your children. CTFs were scrapped in 2011, although existing ones will continue to operate until the child is 18.
You cannot have a Junior ISA as well as a Child Trust Fund but If you want to open a Junior ISA you can transfer the trust fund into it. This generally makes good financial sense – the charges on CTFs tend to be higher and the investment choices more limited.
Once a parent or guardian has opened a Junior ISA, anyone – friend or family – can contribute to it. You can save £4,080 per tax year (6th of April to 5th of April each year) into a JISA and from April 2019, this allowance will increase to £4,368. There is no limit on the amount of interest or growth that is tax free.
There are two kinds of JISAs. Cash JISAs which are usually opened at a bank or building society and Stocks and Shares JISAs.
The interest rates available for Cash JISAs are currently fairly low compared to inflation so if your child is young, it may be worth considering a stocks and shares JISA. This will give the fund more potential to grow in value although it will depend on the performance of the stocks and shares you’re invested in.