What Is a Junior ISA? Should You Open One?

ISAs are really popular savings accounts which nowadays represent the new frontier of savings and investment.They are in fact available for all UK residents and they come in many different types in order to meet the needs of as many citizens as possible. By opening an ISA, you’ll be basically investing your capital according to your preferences and in a tax-efficient way. That’s one of the main reasons for the huge popularity of this savings account. The amount of funds you can currently deposit on your ISA, which is called annual ISA allowance, amounts to £20.000 per year. Another reason why so many people choose to open an ISA is that it allows all UK residents to own an account, even underage people. This is the case, for example, of Moneyfarm Junior ISA, a particular kind of savings account designed to put money away for your children. Let’s have a closer look on this matter.

What is a JISA?

As previously mentioned, nowadays you have a wide choice regarding the types of ISAs you can open in the UK.

One of the most popular ones is the Junior ISA, which can also be called JISA. It is a particular kind of savings account intended to save money for your children’s future. It can be opened by a parent or by a legal guardian for the underage children and it represents a really good way to put money away in a tax efficient way. This means that, just like any other kind of ISA, you won’t pay any tax on the money you deposit on your fund. You can also decide to invest the capital you put away without paying any income tax on your investments. The account allowance of a junior ISA is not the same as a regular ISA: as a matter of fact, the amount you can deposit in a year on this type of account is up to £9.000. Also, the minimum amount that can be deposited currently amounts to $25 per month.

The money can be deposited by a parent, by a legal guardian and by other family members or friends who wish to contribute to your underage child’s future. Once your child reaches 18, he or she will be able to access and to withdraw the money on the JISA. Junior ISAs are available for all UK residents under the age of 18 who don’t already own a Stocks and Shares ISA, which is another type of ISA available in the United Kingdom, nor any other kind of child trust fund. If your child already owns any of these accounts, you’ll be able to transfer the money you saved for him (or her) into your new JISA.

How many types of JISAS are there?

Nowadays, UK citizens can choose between two different types of Junior ISAs depending on their preferences and needs. The first one is called Cash Junior ISA, which is the regular kind of savings account for underage children. As previously mentioned, it can be opened by a parent or legal guardian to save money for their children future without paying any tax on it. The second kind of JISA currently available in the UK is called Stocks and Shares Junior ISA. By opening this type of account, you won’t be just saving money, but also investing it.

Before opening a Stocks and Shares ISA you should take into account that, just like any other kind of investments, it comes with a risk. As a matter of fact, when you invest your money, you’re giving it the opportunity to grow over time while also putting it at risk. Therefore, you should always remember that, when turning 18, your child might also end up getting less than you put in. Whichever type of ISA you’ll decide to open, your son or daughter will be able to take control of the account when they’re 16 and to withdraw the money when they’re 18.

Things you should take into account before opening a Junior ISA

In modern times, more and more parents decide to open a Junior ISA to try ensure a stable financial future for their children. It might be, in fact, a very good way to save for your child in a tax efficient way. However, there are some important things you should take into account before opening a JISA. As previously mentioned, if you decide to open a Stocks and Shares ISA you should always remember that your investments will be subject to the market constant swings, so you have no guarantee that your child will actually get more than you deposited. In addition to that, you should take into consideration that the tax rules applied to your investment could change over the years.

Lastly, it is always better to consider that your children will be able to withdraw their money as soon as they turn 18 years old. As a matter of fact, when you open a Junior ISA, you agree to give your children the freedom to access the funds you saved for them as soon as they come of age: from that moment on they will be able to use the money however they want.

Is a Junior ISA the right savings account for your needs?

If you’re worried about your children’s future, opening a Junior ISA could be a good way to try to ensure a more stable economic journey for them. This way, you’ll be able to grant him or her access to university, to help buying a house, or to simply help fulfill his or her dreams. Opening a Junior ISA is a good idea for all those people who are looking for a tax-free and long-term savings account and don’t want their children to be able to access the money before coming of age. On the other hand, Stocks and Shares ISAs are more suitable for parents who want to give their savings the chance to grow over time. In this case, you should never forget about the risks that come with any kind of investment.