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ISAs

Junior ISA Yes or NO

This week the Junior ISA has been launched to replace the Child Trust Fund which was closed to new savers in January this year. Here is a quick rundown of what you need to know!

So, what is a Junior ISA?

The Junior ISA (JISA) is the government’s latest initiative to help family members save for their child’s future. Family and friends can contribute a maximum of £3,600 each year into a cash or stocks and shares Junior ISA account, of which the child can have one of each. From April 2013, the limit will be raised in line with the consumer price index.

Who is eligible to have one?

The Junior ISA is available to all UK residents under the age of 18 apart from those already with a Child Trust Fund (CTF) – which applies to all children born between 1 September 2002 and 2 January 2011.

When can they access it?

Except in cases of terminal illness or death, no withdrawals can be made before the child’s 18th birthday at which point it will automatically be converted into an adult ISA. However, the child can take control of the investment from age 16.

How does it differ from a Child Trust Fund?

The main difference between the two vehicles is that Junior ISAs will not benefit from any of the government contributions that a Child Trust Fund did (£250 at birth and a further £250 on the child’s seventh birthday). This will be relying solely on funding from parents and relatives. There was an issue raised earlier this year comparing the contribution limits of a Junior ISA (of £3,600) compared to the Child Trust Fund’s contribution limit of £1,200 which has been addressed, resulting in a rise in the Child Trust Fund limit to meet the Junior ISA limit later this year.

What are the advantages?

The advantages are quite clear. At a time when university fees are at a record level and deposits for first time buyers are soaring, the opportunity to provide a nest egg is certainly appealing. Regular contributions each month from birth to the child’s 18th birthday could generate a substantial fund giving a child a financial boost when starting out in their adult life. As with Child Trust Funds, the long term nature of investment into a stocks and shares Junior ISA from birth increases the potential for some great returns. However, where one of the Child Trust Fund’s greatest negatives was the lack of offerings (there are only 14 stocks and shares Child Trust Fund’s on the market) there is expected to be a much better choice of Junior ISAs.

What alternatives to the Junior ISA are available?

In the main there are a few alternatives, for example Children’s savings accounts. There are a number of different bank and building society accounts for families to choose from, many with attractive rates of interest. In addition there are specific children’s products from National Savings and Investments. As a variation on the children’s bank accounts above, NS&I offer the likes of Children’s Bonus Bonds – a five year tax free product on which the full interest rate is paid when the bond has been held for the full term, or alternatively Premium Bonds, which give the possibility of winning prizes from £25 to £1m which traditionally made these products a popular gift for children under 16. The bonds can be cashed in at face value at any time.