A Junior Individual Savings Account (JISA) is designed as a long-term, tax-free savings account for children.
This means that the interest or gains made within the account are exempt from tax.
This tax-free benefit can be very powerful over the long term and not having to worry about declaring the tax is also a boon.
Additionally, you can deposit up to £9,000 per year meaning your child has the potential to earn interest on a much larger savings stash!
There are some key things to consider though:
- Your child must be under 18 to open an account.
- Living in the UK.
- A maximum of £9,000 can be saved/invested (2021/22 financial year).
- You cannot have a Junior ISA and a Child Trust Fund.
- Parents manage the account until 16
- At 16 the child takes over account management
- At 18 the child can withdraw money
There are two types of Junior ISA:
- Junior Cash ISA
- Junior Stocks and Shares ISA
A Junior Cash ISA works like a normal savings account, however, you pay no tax on any interest you earn. Like the savings account mentioned above, you can get fixed and regular savings rates.
A Junior Stocks and Shares ISA allows you to invest your child’s money in stocks, bonds, funds etc. While stocks and shares are seen as riskier investments, over time they have proved to return greater results than cash savings. Don’t believe me? Check out the surprisingly easy way to become a millionaire.
Many parents will open a Junior Stocks and Shares ISA for their children and expect to invest for 18 or more years. This is usually long enough to increases the likelihood of riding out market crashes and corrections.
Be warned though – the value of your child’s savings can go down as well as up when investing.
Unlike savings accounts, Junior ISAs do not have the £100 threshold on interest earned. Therefore parents can invest money for a child without any tax concerns as long as they stay under the generous £9,000 per year allowance.
Click here to read our Ultimate Guide to ISAs.