Junior ISAs: how to save for your kids future

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Fact Checked.
Updated on
July 26, 2022

In a nutshell

A Junior ISA is an excellent way to save for your child’s future. The savings will grow over time, with a nice cash pot ready and waiting for when they turn 18. And best of all you don’t pay any tax at all. It’s a win-win!

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Saving for your child’s future is a no-brainer, right? If you can afford to put a little extra away each month, it will soon add up and give you peace of mind that they’ll have a financial safety net when they go out into the big bad world, or a solid foundation to continue saving for a big purchase like their own home.

But how should you go about it? Well, opening a Junior ISA is a great option, and here we explain everything you need to know.

What is a Junior ISA?

A Junior ISA (Junior Individual Savings Account or “JISA”) is a type of long-term, tax-free savings or investment account for children. It was launched to encourage families to save for their children’s futures.

JISA - Junior Individual Savings Account

Any money you save or invest in a Junior ISA is essentially locked away until your kid’s 18th birthday, after which point it becomes theirs. We’re thinking of a nice deposit for a home, or a good base to continue saving.

Junior ISA (JISA) when they turn 18 no tax

Who can open a Junior ISA? Who can pay money into it?

To open a Junior ISA, your child has to be under 18 and living in the UK.

You can only open an ISA on their behalf if you’re their parent or legal guardian and a UK resident.

When your child turns sweet 16, they can apply to manage their own Junior ISA — but they can’t withdraw the money until they’re 18.

Anyone can pay money into your child’s ISA, including parents, grandparents, family and friends. The money in the Junior ISA then belongs to your child.

What are the different types of Junior ISA? 

There are a couple of different types of Junior ISA available. Your child can have a Cash Junior ISA or a Stocks & Shares Junior ISA.

Cash Junior ISA

This is exactly like a regular savings account you’ll probably be familiar with – you simply add cash and get interest in return. Interest rates are super low at the moment, so expect around 2% per year. You won’t pay any tax on the interest at all. And once your child turns 18, it will automatically turn into a regular Cash ISA in their name.

Stocks & Shares Junior ISA

This is where your kids' savings will really grow. When you save in a Stocks & Shares Junior ISA, your ISA provider (the company that looks after the ISA) will work with an investment fund (the experts who manage investments) to grow your kids' savings safely over time – with the aim for your kid to be rolling in it by the time they’re 18 – with all the money being completely tax-free!

It will then turn into a regular Stocks & Shares ISA when they're 18.

It’s far simpler and safer than it sounds – you don’t actually need to do anything, it’s all handled for you by the experts, and they’ll invest in things such as:

  • Stocks & shares: This is where you buy an ownership stake in a business, called a share, and the value of the share increases as the value of the company  increases, when the company does well. These are traded on stock exchanges all over the world.
  • Bonds: a bond is like loaning your money to a company or government, where you receive interest payments on the amount you’ve lent. The bond has a date when they mature, which is when the loan amount will be repaid (plus interest).

  • Exchange-traded funds (ETFs): A fund is a group of investments or shares grouped together, for instance the top 100 companies in the UK. You can then simply buy a share of the fund rather than all the individual companies. This can be safer than an individual share as your money is spread across a wide range of companies. The shares in these funds are traded on a stock exchange too.

Should I pick a Cash Junior ISA or a Stocks & Shares Junior ISA?

Let’s assume you are opening a Junior ISA for your new born baby, or they’re just a few years old. That means you’ve got years and years of saving and the money growing until they are 18 – when they get the money themselves. Can you guess the best for long term saving?

Yep, you guessed it – a Stocks and Shares Junior ISA is by far the best way to save for the future. As a rule of thumb, you could expect your savings to increase by 8% per year on average – and the best bit, the interest compounds. This means your interest is used to make more money, and the interest from that makes even more money. You get the idea. Over 18 years this builds up to an impressive amount!

With a Cash Junior ISA, you’ll get a set interest rate each year, which currently would be around 1-2% depending on the ISA provider – quite a lot lower than the 8% average of a Stocks and Shares ISA.

Cash Junior ISA or a Stocks & Shares Junior ISA

If your child is a lot older, around 15-17, you could consider a Cash Junior ISA. Why? Over a short time frame, saving in a Stocks & Shares Junior ISA could end up losing money depending on how the investments perform.

Although saying that, you could also make a lot of money too. The important thing is to have a long term view, and ideally your child would keep investing for their future after they turn 18, and not immediately spend it all on a fast car!

So, for long term savings go for a Stocks and Shares Junior ISA – your child will end up with a lot more money this way.

For short term savings, 3 years or less, and if you have a view to spend the money immediately when they're 18, you could go for a Cash Junior ISA.

How to open a Junior ISA

The good news is, whichever type of Junior ISA you choose, it’s super easy to open one. And it usually doesn’t take that long, either. Not sure where to look? Here are our recommendations for each type of Junior ISA...

For a Stocks & Shares Junior ISA we recommend:

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Best Stocks & Shares Junior ISA

Nutmeg

Nutmeg's investment track record is good, and it’s simple to set up and manage your money. Just sit back and watch your money grow.

Rating:

Nutmeg rated 4 stars

There's currently a deal for our readers: get your first 6 months with Nutmeg fee-free!

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Moneybox

Moneybox is a nice and simple Stocks & Shares Junior ISA, and easy to set up and use, all on your phone. There’s a range of funds to choose from yourself, or you can simply select an option set by Moneybox to get started.

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For a Cash Junior ISA we recommend:

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Best Cash Junior ISA

Tesco Bank

Tesco Bank has one of the best Cash Junior ISAs around, currently offering 2.25% per year. Although the rate can sometimes change both up and down – it’s a variable rate. It’s a simple account, which you can manage online or over the phone. What’s not to love!

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How much can you pay into a Junior ISA?

There’s only so much you can put into your child’s ISA each tax year (which runs from April 6 to April 5 the following year). This is called the Junior ISA annual allowance (A.K.A., the ‘annual limit’).

For the 2022/23 tax year, the annual allowance for a JISA is £9,000. That means you can save up to £9,000 each year tax-free – not bad at all!

Junior ISA allowance 2022-2023

The allowance resets at the start of the new tax year (April 6), and you can’t carry over any of your unused allowance from the previous year. It’s a ‘use it or lose it situation’.

Is the Junior ISA allowance per child?

Yup! They might have to share everything else, but if you have more than one child, they will have their own Junior ISA allowance. No need to pick favourites!

Does paying into a JISA affect your own personal ISA allowance?

Nope! It’s completely separate. Your ISA allowance remains at £20,000 per year.

Your child’s Junior ISA allowance is their own personal allowance. If you have your own ISA (which is a very good idea), adding money to your kid’s ISA won’t eat into your own allowance.

What happens when my child turns 18?

Your child can manage their own Junior ISA when they turn 16, but the money remains out of reach until they’re 18. 

With many Junior ISA providers, when your child turns the big 1-8, their account is automatically upgraded to an adult ISA and if your child wants to continue saving and/or investing for their future they can, and of course they should!

Junior ISA timeline

Once 18, the money is theirs to do with as they please. New car? Gap year? Deposit on a flat? The possibilities are endless of course, but we strongly recommend keeping it invested for the long-term! And, if they can learn all about saving and investing from you, all the better!

Best of all, at 18 they can open a Lifetime ISA – which acts the same as either a Cash ISA or a Stocks & Shares ISA, but with a 25% government bonus every time they pay in – with an allowance of £4,000 per year. Perfect for young savers beginning to save for their first home (the rules for a Lifetime ISA are you must buy your first home, or save it until you are 60).

How safe are Junior ISAs?

Junior ISAs can be a very safe way to save for the future. They are covered by the Financial Services Compensation Scheme (FSCS) up to a maximum of £85,000. So, in the very unlikely scenario your ISA provider goes bust, you would get your money back.

Stocks & Shares Junior ISAs might seem a little riskier, because you’re investing your kid’s savings in real businesses on the stock market, rather than a fixed interest rate with a Cash Junior ISA. But that’s typically not the case, investing over a long period of time smooths out any bumps in the road, and is one of the best ways to grow your kids' savings (and yours!).

Junior ISAs: the future of saving

It’s tough out there for young people at the moment, becoming near impossible to save for a house deposit, let alone just pay the bills – and it’s not looking to change any time soon. 

Now, we don’t know what the future will hold. Nobody does. But we do know for sure that opening a Junior ISA for your kid(s) will help give them a huge boost when they become a real adult at 18 (well, kind of a real adult!). A small investment now could become a really large sum in the future – the key is to start saving as early as possible, and keep saving little and often!

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This article has been fact checked

This article was written by the team at Nuts About Money, and fact-checked by 2 independent reviewers. You’re in safe hands.

Ready to start saving for your kids' future?

Read our review of Nutmeg – our top pick for a Stocks & Shares Junior ISA.

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