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Junior Investment Savings Accounts, or JISAs for short, are tax-free savings accounts for kids up to the age of 18.
The principle is similar to an adult ISA, except that the money saved may not be withdrawn until the child turns 18. At this point, the money legally belongs to them and gets converted automatically into an adult ISA.
Although the Junior ISA account is in the name of the child, it’s opened by a parent or legal guardian. This person is called the 'registered contact'.
JISAs are most likely to be used for saving over the long-term, for example to pay for university fees or a deposit on a first home. It’s therefore important to be aware of the risks and benefits of cash JISAs compared to stocks & shares JISAs when investing over many years.
Historically, stocks & shares have enjoyed higher returns over the long-term, but they are more volatile. This means the value of your investment goes up and down. Unlike cash, there is the possibility of getting out less than you put in. Also remember that past performance is not a reliable indicator of future performance.
On the other hand, cash is unlikely to beat inflation convincingly over the coming years. Indeed, it could lose significant value in real terms over the long haul.
Equity vs. cash over the long term
Additional info: Chart shows the growth of £100 invested in 1993. Equities represented by FTSE All-Share index (and does not account for investment fees). Cash is average building society interest rates
Source: FTSE, Swanlow Park
Are Junior ISAs right for me?
JISAs may not suit everyone, with some parents doubtless preferring to set aside more into their own ISA instead.
- Save tax free. No income or capital gains tax.
- Provides clear focus point when saving for your children’s future. Relatives are able to contribute monthly or as-and-when.
- Adults who maxed out their ISA can extend tax free saving allowance.
- JISAs automatically roll over to become ISAs when the child turns 18. Retaining the tax-free status is an advantage if they continue saving over the long term into adulthood.
- Money is locked away – so no temptation to spend it.
- You have no control over the money after your child turns 18 - not even if they want to spend it recklessly. The money is legally theirs to do with what they want.
- The tax free advantage of cash JISAs is limited, given that few children need to pay tax on interest anyway. (Tax on interest in savings accounts is usually deducted automatically at source. But this can be avoided by filling in an R85 form, so long as the child’s income is below the Income Tax threshold, which is £11,000 for 2016/17).
- Money is locked away – so you can’t access it, even in an emergency.
- All children under 18 born in the UK are eligible unless they already have a Child Trust Fund. You can transfer a Child Trust Fund into a Junior ISA.
- You can choose a Cash JISA and/or a Stocks & Shares JISA.
- Up to £4,080 can be paid per child in the 2016/17 tax year.
- Unlike adult ISAs, you can’t retain JISAs from previous tax years. If you want to switch providers, savings accumulated in the existing JISA are transferred in full to the new provider.
So the Government gives away this great strapping big tax-free allowance, yet MoneySavingExpert suggests it may not be worth it. What's going on?
An overview of Junior ISAs, which are a long term, tax-free savings accounts for children.