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Should I set up a Junior ISA (JISA) for my child? The answer is probably yes. These long-term savings accounts mean you can put together some tax-free cash for your child. Whether it be for university fees, travelling or a down payment on a house – you’ll be setting them up well. They are also a great learning opportunity for children. You can teach them money management from a young age and help to develop their savings skills.
There’s a Warren Buffet quote that we really love here at MoneyMagpie. “Someone’s sitting in the shade today because someone planted a tree a long time ago.” The quote is about thinking of future generations and putting in place things that will benefit them. So read on to find out what a JISA is and why you should set one up for your child.
Simply put, it’s the junior version of an ISA. It’s an Individual Savings Account specifically designed for those under 18 years of age. A JISA would provide your child with long-term, tax-free savings. Unlike regular junior savings accounts, your child can’t access the money until they turn 18 when they can choose whether to withdraw the money and spend it or put it in another savings account or adult ISA.
Parents or guardians with parental responsibility can open a Junior ISA and manage the account but the money in the account belongs to the child. At the age of 16, a child can take charge of the account but will not be able to withdraw money until they are 18. The current savings limit for the 2021-22 tax-year is £9000 but this may change each tax year.
There are two different forms of JISA your child can have – a cash ISA or a stocks and shares ISA. It is worth knowing that your child can hold both types at the same time. But you cannot exceed the £9000 savings limit. For example, you could save £7000 in a cash ISA and £2000 in stocks and shares ISA this tax year.
To open a Junior ISA, you need to:
Your child can hold 1 cash ISA and 1 stocks and shares ISA at the same time.
These are the safer choice of ISA. They either have a fixed interest rate or a variable interest rate dependent on the market. Over time you will accumulate interest on your savings, which will not be taxed when your child cashes out their ISA at 18.
These ISAs carry more risk as the money is invested in stocks and shares. This can lead to major gains but also possible losses due to market fluctuation. Different companies may also offer different amounts of risk depending on what you feel comfortable with. Like cash ISAs these ISAs are also tax-free but instead of interest you earn capital growth and receive dividends depending on where your money is invested.
We’ve picked out three of the best cash ISAs on the market at the moment to give you a head start on your research. We do however need to be clear that these are the best ones at the time of writing the article (Feb 15 2022) and that ISAs change constantly. So if you are reading this in the future, then be sure to do your research yourself.
The Junior Cash ISA at Halifax is a great choice of cash ISA for your child. It offers a 2% tax-free/AER variable interest rate which is one of the highest on the market. You can open an account with just £1, so it’s great if you don’t have a lot of money to start with. Or you’re teaching your children about how to save their birthday money. You can apply through the form on their website or alternatively visit them in branch for more information and guidance.
The Junior ISA at Santander is another great option when it comes to Cash ISAs. There is no minimum deposit amount required but it does have a lower interest rate than other options. Currently, the interest rate is 0.75% AER variable. You can pay into the account via standing order, one-off payments or online transfer. To open an account with them you have to visit them in a branch.
Our final cash ISA suggestion is the Lloyds Junior Cash ISA. With a 1.5% AER variable interest rate, it is up there in terms of return. It has a minimum opening value of £1 so is a great place to start saving. Like other account providers, you can pay in money in a variety of ways. You can pay money in at counters in branches, through online transfers or via standing orders. The account can be set up either online or in a branch.
At Fidelity, you can start your stocks and shares ISA with a £1000 lump sum or a £25 savings plan. They offer expert guidance when it comes to choosing funds and has over 3000 to choose from. Unlike some other providers, they don’t charge a service fee on junior accounts but ongoing fund charges and other fees may apply. You can also see the risk involved in investing in certain funds but their navigator will help guide you on your path. Their UK and Ireland-based call centres are open 6 days a week for more information. To open the account, you can apply directly on their website.
Beanstalk is a money saving app that helps you, or anyone you invite, save money for your kids through a variety of stocks and shares. Their app makes viewing, sharing and managing your funds as easy as checking the weather. With no minimum or regular contribution required, their savings plans are suited to you – regardless of your financial situation!
Nutmeg is another online ISA provider, with an in-house investment team that has built a range of portfolios for junior ISAs. These portfolios have various risk factors and investment styles. With an investment starting point at £100, they give you the flexibility to choose your risk style and change it if your situation changes.
With 5 different investment styles, NatWest’s Junior ISA could be a good choice if you want someone else to manage the risk. They have a scale from cautious to daring depending on how much risk you are willing to take. Like other banks, they charge a platform, fund ongoing and transaction fees.