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The pros and cons of junior ISAs

Written by Ines Pena, Digital Content Executive

Turning 18 is possibly one of the most exciting times in your child's life. Suddenly, they're hurtling towards adulthood and they're about to experience a lot of change.

Having a pot of money ready for them when they turn 18 is a great way to give your child a helpful boost into adult life. But there are many different ways to save for your child's future and it can be hard to tell which option is right for you and your family.

One of those options is the junior ISA (JISA). We've pulled together a list of the benefits of JISAs and the things to keep in mind, so you know what to expect if you do choose a JISA.

What is a junior ISA?

JISAs are long-term, tax-free savings accounts for children. They can be opened for any child under 18 years old (under 16 years old for a OneFamily JISA) who doesn't have a child trust fund, but only by the child's parents or legal guardians. If a child does have a child trust fund, it can be transferred into a JISA.

You can put up to £9,000 a year into a JISA and anyone can pay into it. As the JISA is in the child's name, only they can access the money and only when they turn 18. At this point, they'll be able to decide what they want to do with the money.

What are the pros of junior ISAs?

There are many good reasons to open a JISA and start saving for your child's future. Making this decision early could give your child a boost at the start of adulthood by helping them to pay for higher education, driving lessons or even to take their first step on the housing ladder. Here are some of the main advantages of opening a JISA.

Junior ISAs are tax-efficient

When your child turns 18 and is able to take the money out of their JISA, they won’t pay tax on any interest or returns.

There’s more than one type of junior ISA

There are two types of JISAs: stocks and shares JISAs, and cash JISAs.

Stocks and shares JISAs invest your money in the stock market. They have good potential to grow over the long term but there's still a chance your child might get back less money than has been put in.

With cash JISAs your money is protected, since it isn't invested in the stock market. It will grow by earning interest like current accounts do.

OneFamily only offers stocks and shares Junior ISAs. If you'd like to know more, you can read our article on the differences between saving in cash and investing.

Money in a junior ISA is locked in

The money you invest in a JISA is locked in, meaning it can't be accessed by anyone other than your child, and only when they turn 18. This means that you and your child can't be tempted to dip in early and the money will still be there when they reach 18.

Junior ISAs are a good way to educate children about finances and savings

What better way to start teaching your children about money than by telling them they already have some money in their name?

You’ll have the perfect conversation starter to teach them about the importance of money management, long-term savings and how financial products work.

This will put them in a good position when they take control of their JISA so they can work out how to stretch that lump sum and make it work towards their long-term goals.

Anyone can put money into a junior ISA

Although you can only open a JISA for your own child, anyone can pay into them – they don’t even have to be family! This makes it the perfect way for relatives or family friends to contribute to your child’s future, especially as a present on special occasions such as birthdays, graduations or Christmas.

A junior ISA can help reduce inheritance tax

A JISA can be a good way to reduce how much tax your child pays on their inheritance after you die. They won't pay any tax on the money their JISA makes, so if you’re putting money aside to leave to your child when you’re no longer around, you could put some of it – up to £9,000 a year, based on the current annual ISA allowance – into a JISA.

Things to consider

Like all savings accounts, there are a few things to keep in mind if you're thinking about opening a junior ISA.

Your money is locked in

As we've mentioned, the money you put into a junior ISA is locked-in until your child turns 18. While this removes temptation, it could be seen as a problem if you or your child need the money before their 18th birthday or if you decide you'd rather use it for something else.

Inflation can affect the value of money in a cash junior ISA

Interest rates on cash JISAs are relatively low and inflation rates are rising, so money held in a cash JISA could be worth less in the future than it is today.

Cash JISAs don't invest in stocks and shares, which means your child's money is protected from drops in the stock market. However, if the cost of living goes up more than interest rates, then the money in the JISA will be able to buy less in the future than it can today.

Stocks and shares junior ISAs can fall in value

The money invested in a stocks and shares JISA is affected by changes in the stock market. This means the value of your investments could go down as well as up, so your child may get back less than has been put in.

Weighing up your options

So, is it a good idea to open a JISA for your child?

Well, you'll be building up a lump sum that only they can access and only when they turn 18. JISAs are tax-free, and anyone can pay into an account, so friends and relatives can contribute to your child's future. It's also a good way to start teaching your child about money and long-term saving.

But, like other most savings accounts, there are a few things to consider, especially when it comes to choosing between cash and stocks and shares. Money saved in a cash JISA can lose its value over time if inflation goes up by more than interest rates, while money invested in a stocks and shares JISA is affected by changes in the stock market so the value of your investments could go down.

Ready to open a OneFamily Junior ISA?

With our stocks and shares Junior ISA you can start investing from just £10 per month up to a maximum of £9,000 each tax year on behalf of a child. Anyone can pay in, and the child will gain access to the account once they are 18 years old.

Yes, tell me more!

Stocks and shares JISAs have good long-term growth potential, but the value of your investments can go up or down and your child could get back less money than you’ve put in.

Find out more about junior ISAs

Junior ISA FAQs

Who can open a junior ISA

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Transfer a child trust fund or junior ISA

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Learn more about junior ISAs

Find out more about how a JISA can help you save for your child's future.

Explore our Junior ISA guides