It’s never too early to start saving.
Setting up a junior ISA can be a great first step to get your child on the path to a more secure financial future. There are two types of junior ISA – a cash savings account or stocks and shares. While the ISA will be in your child’s name, you or a legal guardian will need to open and manage the account until they turn 18. 

In this article, we take a look at all you need to know when it comes to choosing a junior ISA.

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What is a junior ISA?

A junior ISA is a savings account that you can set up for a child below the age of 18. The ISA needs to be set up by a parent or guardian and they can be in the form of either cash savings or stocks and shares. They’re often created to help secure a more stable financial future for the next generation. 

What are the benefits of a junior ISA?

Setting up a junior ISA – or any kind of savings account or investment – is a good investment for your child. It can help them start their adult life with funds behind them and put them onto the financial ladder before they start their own savings journey. 

Take a look at some of the other benefits your family can enjoy with a junior ISA:

  • Tax advantages – A junior ISA can be a great choice as usually it means that tax doesn’t need to be paid on any interest rates or returns. This means that even when your child turns 18, they won’t lose out when it comes to capital gains or income tax deductions.
  • Locked in – A junior ISA is designed to be locked in. This means that your child won’t have any access to the ISA funds until they turn 18. Depending on their age, this gives a solid amount of time for funds and interest to accumulate. It’s worth noting that there are other types of savings accounts that offer this – for example, fixed rate bonds are also locked in for a period of time (from two to five years) to allow the interest to grow.
  • Anyone can top it up – Another benefit of the junior ISA is that anyone can add to it. This means that relatives, friends, grandparents, carers, and anyone else who wants to contribute to your child’s financial future can do so by depositing money into the ISA.

Are junior ISAs worth it?

Junior ISAs can be a good choice if you want to start saving early for your child’s adult life. It’s worth noting, however, that a junior ISA isn’t the only savings account option for young people. 

You can also look at opening a separate savings account or consider fixed rate bonds, which may have a more competitive edge in terms of interest rates and gains.

If you’re opening any kind of financial savings account, it’s important to look for the most competitive rates as well as terms and conditions that suit you and your family – regardless of your demographic.

Who is eligible for a junior ISA?

Your child is eligible for a junior ISA if they’re under 18 years old and don’t have a child trust fund. The age limit does vary from bank to bank and some will have a lower age limit of 16. Your child will usually need to be resident in the UK, although again, this can vary depending on the type of account and the financial institution. 

Pros and cons of junior ISA cash accounts

Cash accounts are popular when setting up a junior ISA as they have a lower risk than stocks and shares. However, while cash is considered to be a more stable choice, inflation and the cost of living can rise, which may lead to the account not accumulating much in terms of interest. It’s important to shop around, compare the market, and try to secure the best interest rate deal when opening your junior ISA.

Pros and cons of junior ISA stocks and shares

Stocks and shares are another form of junior ISA and can be a more lucrative option for those looking to the long term. Because stocks and shares can raise their value, you may get more out of this kind of ISA than a cash ISA. However, it’s also worth remembering that while stocks and shares can increase in value, they can also fall. Make sure that you do due diligence when researching the best stocks and shares to mitigate some of that risk.

How to choose the best junior ISA

Choosing the best junior ISA means getting the best deals in terms of interest rates. If you want to secure a financial future for the young people in your life, there are alternatives that mean you don’t have to be locked into a junior ISA. Instead, you may want to look at competitive savings accounts or fixed rate bonds.

You can also expand your search beyond the junior ISA market and select a bank or financial institution that offers the very best rates and deals. It’s worth remembering that while numbers matter when selecting a savings account or fixed rate bond, the terms and conditions are equally important. Make sure that you read the small print to find terms that are favourable for you and your family, such as notice periods, flexibility, and policies and penalties for early withdrawal.

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