What are the benefits of junior ISAs?
Junior ISAs are one of the most popular financial products when it comes to putting money away for children. But what are the reasons for its popularity, and is a junior ISA worth it for you and your family?
If you’re looking to start putting money aside for your child, you might be considering a few options that, despite having similar goals, are very different from each other.
One of the most popular options available is the junior ISA, with 1.25 million junior ISAs having been paid into throughout the 2022-2023 tax year alone. But why are parents choosing this option over others?
Take a look at some of the benefits of junior ISAs.
1. Your child won’t pay any tax on the money they take out of a junior ISA
One of the major benefits of junior ISAs is that, like all other ISAs, junior ISAs are tax-exempt. This means that, when your child gains access to the money in their junior ISA at age 18 (we’ll explain this further down), they won’t have to pay any tax on the money they take out.
Of course, this includes any extra money their junior ISA might have made, either from accumulating interest (cash junior ISA) or from being invested (stocks and shares junior ISA).
2. The money in a junior ISA can only be accessed by the child and only when they turn 18
The money that you put into a child’s junior ISA is fully locked-in for them, meaning no one other than the child the junior ISA has been opened for can take any money out.
On top of that, your child won’t be able to take any money out of their junior ISA until their 18th birthday. They can, however, take over management of their account at age 16.
This is one of the main benefits of junior ISAs, as it gives you and your family time to build a sizeable pot of money for your child, and they'll only be able to get that money when they're ready to make their own financial decisions.
Once they get access to the money in their junior ISA, your child can either take the money out right away or choose to put it away for longer and invest in their own future.
3. Anyone can pay into a child’s junior ISA
While no one can take money out of it apart from the child it was opened for, anyone can pay into a child’s junior ISA.
This is one of the greatest benefits of a junior ISA, as grandparents or even family friends can help build a lump sum to give your child a boost into adulthood.
4. You can pay up to £9,000 each tax year into a junior ISA and it doesn't interfere with your ISA allowance
Junior ISAs have an annual allowance of £9,000, meaning that’s how much you (and anyone else who wants to contribute to your child’s future) can put into a junior ISA each tax year.
An added benefit of the junior ISA is that its annual allowance doesn’t interfere with your own ISA allowance, since a junior ISA is in a child’s name and the money in it fully belongs to them once it’s been paid in.
This means that, even if you max out your child’s junior ISA, you still have the full £20,000 of your own ISA allowance to use.
5. You can still claim means-tested benefits if your child has a junior ISA
Since the money in a junior ISA is locked-in for the child and the account is in their name, any money held in a junior ISA won't affect the parent's ability to claim means-tested benefits, such as Universal Credit.
However, depending on how much your child gets when they turn 18, it could affect your child's eligibility for these benefits instead.
6. You can choose between a cash junior ISA and a stocks and shares junior ISA
One of the main benefits of junior ISAs, especially when compared to other types of child savings accounts, is that you get the option to save in cash or invest.
If you open a junior ISA for your child on the day they’re born, you’ll likely be putting money away for 18 years. This is a very long time to have money growing in an account without being able to dip in, so it’s important that your child gets the most out of that money as possible.
There are two types of junior ISAs: cash or stocks and shares.
With a cash junior ISA, the money that you put in grows by accumulating interest. With a stocks and shares junior ISA, that money grows by being invested in the stock market.
Though one option might be more suited to you and your family than the other, money held in stocks and shares accounts has good potential to grow over the long-term, especially if you start investing when your child is very young. Like all investments, however, there is some risk involved, so your child could get back less than you’ve paid in.
Could a OneFamily Junior ISA be right for you and your child?
As a five-time award-winning junior ISA provider, we have plenty of experience in helping families invest in their children’s future. From eligibility to details on how our product works, we’re here to help you invest in a junior ISA that’s right for your child.
How much could you save for your child?
Try our Junior ISA calculator to find out how contributing regularly to a junior ISA could help you build up a lump sum for your child.
Things to consider before opening a junior ISA
If your child already has a child trust fund in their name, then you will need to transfer the funds as your child can't have both a child trust fund and a junior ISA.
However, your child can have both a cash junior ISA and a stocks and shares junior ISA.
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 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.
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
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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.