When having a child, you may start to think about their financial future. The cost of living is a continuing issue, and there is no guarantee of any financial assistance when your children become adults. By investing in a Junior ISA on their behalf from a young age, you’re gifting them financial security as they begin adulthood. In this article, we’ll discuss what a Junior ISA is and relevant eligibility and allowance rules. We’ll also detail benefits of a Junior ISA (JISA), and why the sooner you can open one, the better.

What is a Junior ISA?

A Junior ISA is a long-term savings account. The government introduced them in 2011, to replace the Child Trust Fund. Whilst your child cannot have a Child Trust Fund as well as a JISA, the former can be transferred into a JISA, with investment continuing thereafter.

There are two types of Junior ISA available: a Cash JISA and a Stocks and Shares JISA. The former is often held with a bank, and accrues interest on money saved into it. The latter takes the form of investments, with share value determining growth. It is possible to have one of each type of JISA concurrently per child, though the annual allowance of £9,000 encompasses any JISA held, no matter the type.

Rules of eligibility and annual allowances

Junior ISAs are available to those under the age of 18, living in the UK. This account must be opened by the parent or legal guardian of the child. However anyone may contribute to the JISA, for example grandparents. A total of £9,000 may be invested in a child’s JISA each financial year. If a child has both a cash JISA and Stocks and Shares JISA, the allowance is across both. Contributions made within the JISA allowance do not count towards adults’ £20,000 annual ISA allowance.

Once money is invested in a JISA, it may not be withdrawn until the child turns 18. The money belongs to the child from the point of investment, but they cannot access it until they turn 18. At this point, the balance can be removed as a tax-free lump sum or as smaller lump sums/income when required. If no other instruction is given, the JISA will mature into an adult ISA, allowing them to continue to save and invest towards their financial goals.

While they cannot withdraw anything from the JISA until age 18, they gain control of the account at age 16. This means they can decide how it’s managed, where it’s invested, switch providers, and even open their own adult Cash ISA alongside it.

Benefits of a JISA

Any growth or investment gains on monies invested in the JISA are exempt from income and capital gains tax. As anyone is able to contribute to a Junior ISA once opened, it can be a great way to involve grandparents, for example, in a child’s financial future. Within the annual allowance, birthday or Christmas money can be invested, or inheritance wealth passed on via JISA contributions.

As the investments are locked away until the child becomes an adult, it guarantees the money goes to the child. This long-term planning will result in a pot of wealth at 18, that can be put towards a house purchase or university tuition, for example.

Why should you start saving into a Junior ISA as soon as possible

It is a great idea to begin paying into a Junior ISA as early as financially possible. One great reason for this is the power of compound interest. This means that any interest or growth earned stays in the JISA account. The total in the JISA therefore increases, giving greater potential for growth.

As an example, if £100 per month is invested for 18 years assuming a 5% average annual growth, there is the potential for a pot of £34,000.

Additionally, the later a Junior ISA is opened, the longer it will take, and the higher contributions will be required, to reach the same financial levels.

Of course, JISA growth is dependent on what the interest rate is, or how the invested stocks fair. As with any investment, there is a risk that stocks may go up or down*. The longer an investment is held, the lesser the impact of market turbulence. There is a longer period over which the investments may re-enter a growth path. This will therefore lower the risk of JISA investment.

Over time, small individual contributions will add up. Due to compound interest, a Junior ISA that starts small could still result in a significant pot at the time of it maturing.

Why open a Junior ISA with Willday Wealth Management?

When investing in a Junior ISA with Willday Wealth Management, you’ll have 24/7 access to our app. This means you are able to monitor and top-up the ISA around the clock. Our team of investment consultants are on-hand for calls, chats, and emails, so you’ll always have peace of mind.

After you open a Junior ISA for your child, we’ll send them a plantable children’s book from Willsow. As part of our support for the Woodlands Trust, we also pledge to plant four trees to make sure our children have a greener future, for each Junior ISA opened with us.

Start investing for your child now

It is clear that the sooner you are able to open a Junior ISA, the better. The longer it will have to grow in a tax-efficient manner. Contact us by emailing hi@willdaywm.co.uk or call 0116 222 0119, to discuss opening a Junior ISA today.

*With investing, your capital is at risk and you may get less than what you invested.