A Junior ISA can be used to make long-term investments for your children that are under the age of 16. It is like a savings bond for adults, but instead, a child’s version that the parent or guardian can invest into.
Not only are they a great way of teaching your child to save money, but they are also a great way to kick start your child’s future financial independence.
Types of Junior ISA
Within a Junior ISA, there are two types of investment opportunities that provide different benefits. These are:
If you like to live a secured life, then opening a Cash Junior ISA for your child is the safest investment option. However, you’ll significantly receive less than a stocks and shares ISA. A downside to this type of Junior ISA is that the interest rates are low, and they don’t take into consideration inflation. Therefore, over a set amount of time, your money may hold value now, but in the future, not.
Stocks and Shares ISA
A stocks and shares Junior ISA offer the highest percentage of potential returns. The keyword within that sentence is “potential”. This is because they do not have a fixed interest rate and fluctuates with the stock market. So, although you may be able to achieve a much larger return, you’ll be taking a much greater risk.
Both investment strategies are used as long-term investments, and it really depends on how risk-averse you are. A Cash Junior ISA is safe, but you’ll receive low-interest rates. On the other hand, a Stocks and Shares Junior ISA will offer a higher potential return, but it’ll dramatically increase the investment risk. You can learn more about investment risk here.
What Is the Junior ISA Allowance?
As with most long-term investments, there’s a cap on how much per year you can invest into it. Both Junior ISA options have a combined limit of £9,000 per tax year (6th of April to the following 5th of April). I say combined as you’re only allowed to invest £9,000 in total across both a Cash Junior ISA and a Stocks and Shares Junior ISA.
However, you are allowed to invest in both. For example, £4,500 in a Cash Junior ISA and £4,500 in a Stocks and Shares Junior ISA. If or how you split these up really depends on your investment strategy.
Who Can Open A Junior ISA?
To open an account, you’ll need to be considered the child’s parental responsibility. To physically open a Junior ISA is relatively simple, and you’re only required to gather the following information:
- Decide which type of Junior ISA you’d like to open for your child – Cash, Stocks & Shares, or both.
- Select your official account provider
- Request an application form to fill in further personal and billing details.
Remember, a child can only have one Cash Junior ISA account as well as one Stocks and Share Junior ISA account. Junior ISA accounts aren’t limited per family, and you’re able to open accounts for each child that you’re considered a parental responsibility for.
Your child can take control of the account at 16, however, they cannot withdraw the money until they are 18. You can either let them spend the money or you can advise them to put it into a lifetime ISA for future financial freedom!
James Banerjee is a Senior Account Manager who graduated from the University of Kent in 2014. He works in SEO on clients such as HSBC UK and Nestle and he has a keen interest in personal finances and money-saving advice.