When it comes to your savings and the different ISA’s available, you want to make sure you fully understand what each account can offer and what the advantages and disadvantages to them are. This is important as some may be better suited to you than others are, and some may benefit you better, depending on your finances and goals.
In this article, we’re going to take a look into the junior ISA, who can get it and how to find the best junior ISA rates, as well as taking a look into the pros and cons of the Junior ISA, so you can see and determine if it’s the best ISA account for you.
What is a Junior ISA?
A junior ISA is a long-term savings account that is set up by a parent or guardian and is purely for their child’s future. The junior ISA is a long-term investment for a child, which they can access once they turn 18.
Who Can Access a Junior ISA?
To start with, it has to be a parent or guardian that opens up a junior ISA account for the child. They can then put money into this account, for the child’s future. The child then has access to the account at the age of 18, which is then their money.
How Much Can You Save With a Junior ISA?
The annual allowance for a junior ISA is £9,000 over the tax year. However, there is the option to have 2 junior ISA’s, a stocks and shares and a cash ISA. So, with this in mind, you can split the £9,000 allowance across the two, with one account potentially giving a larger return for your money, in the future.
The Pros and Cons of a Junior ISA
Below, are the pros and cons to a junior ISA account:
Pros:
- Junior ISA’s are tax efficient-
With the junior ISA, you can save a set amount without being taxed. All the interest and gains are tax-free in a junior ISA account.
- There are different types if Junior ISA’s-
As mentioned above, there are two types of junior ISA’s; a cash ISA and stocks and shares ISA. You can open up both of these accounts and split the annual allowance between the two, or you can just have one open. With both of these come great benefits. The junior cash ISA provides an interest rate which is normally higher than a normal savings account. The junior stocks and shares ISA allows your child to benefit from the potential of investments. Both accounts offer great benefits for your child.
- The money belongs to the child-
All the money put into this account, including the returns on investments, belongs to the child, which they can access when they turn 18. This is a great solution for long-term saving and gives your child a strong start to adulthood and gets them set up comfortably with their finances.
- The money is locked in-
The money can only be accessed once the child turns 18, and therefore, you can’t dip in and out of the account if ever tempted. The account is designed purely for savings for your child in the future, which only they can access when they turn 18.
- Long term investment-
The junior ISA is an excellent long-term investment, where you can save and make money for your future child. For example, if you were to put the yearly allowance into the account every year, for 18 years, then you will have put away £162,000.
Cons:
- The money is locked in-
The money is essentially locked into the account until the child turns 18. This means, if you ever needed the money in this account for an emergency, you can’t access it. The money is sitting there waiting for the child to turn 18 and the parent or guardian has no access to this and can’t take any out, once it is put in.
- The money belongs to the child-
Although it is a benefit that the money belongs to the child, which only they can access once they turn 18, there is the risk that all of this money saved, you have no control over once they have access to it. Once they turn 18, they may spend this money on going out and buying clothes etc and not actually using it, to help set up their future. With the amount that can be saved from the ISA, it is a large amount of money that may not be used in the best way.
- Low yearly allowance-
Even though the income is tax-free, there is a limit on how much can be put into the junior ISA every year. The tax-free allowance also changes from year to year, so it’s important to check this and how much you can contribute per year. The allowance for the junior ISA is significantly lower than other ISA’s, so if you were wanting to save more than £9,000 a year into the account, you would need to find a different ISA that can do this.
