What is a Junior ISA (JISA) and how does it work?

If you’re starting a family and want to save a tidy nest egg for your child, a Junior Individual Savings Account (JISA) can help you achieve this goal.

By opening a Junior ISA when your child is born, they can benefit from long-term returns and compound interest (where your interest earns interest).

And best of all – you don’t need a lump sum to get started and can invest a small amount regularly.

We’ll reveal what a Junior ISA is, how it works and how to build a savings pot potentially worth thousands for your child.

What is a Junior ISA?

A Junior ISA is a long-term, tax-free savings account for children with an annual limit of £9,000.

This contribution limit applies to both the cash and stocks and shares accounts.

What are the different types of Junior ISA?

There are two types of Junior ISA.

• A cash Junior ISA: This is similar to a savings account. Both you and your child don’t have to pay tax on the interest earned.
• A stocks and shares Junior ISA: This account allows you to put money into investments (on behalf of your child), including shares, funds and bonds. Any capital growth or dividends are free from tax.

Who can open a Junior ISA?

You can open a Junior ISA if your child lives in the UK and is under the age of 18.

If your child doesn’t live in the UK, they can only have a Junior ISA if you’re employed by the Crown and they depend on you for care.

You won’t be able to open a Junior ISA if you have a Child Trust Fund (CTF) unless you transfer it.

How many Junior ISAs can my child have?

You can open two Junior ISAs for your child – they can have one cash and one stocks and shares account.

Can I transfer Junior ISAs?

Yes, you can transfer Junior ISAs between different providers.

How to open a junior ISA account

A parent or guardian can open an account through a bank, building society or investment platform, and they will manage it. It’s worth shopping around for the best Junior ISA.

The money belongs to your child, who can control the account when they turn 16 but cannot withdraw any funds until they turn 18 when the Junior ISA turns into an adult ISA.

There are a few exceptions to withdrawals before your child turns 18, and you can allow someone else to manage the ISA beyond this age if your child lacks the mental capacity to manage it.

If your child is aged 16 or 17, they can open a Junior ISA, but it’s worth getting one earlier to benefit from long-term returns and compound interest.

They can also open an adult cash ISA, which has a higher annual limit of £20,000.

Who can pay into a Junior ISA?

Anyone can. The only restriction is that you cannot pay in more than £9,000 in a tax year. If this is exceeded, the money is held in a savings account in trust for your child.

This annual limit also applies if you’re paying into both a cash and stocks and shares Junior ISA. You can continue to pay into your child’s account even if they move abroad.

If you want to transfer money between two Junior ISAs, you can, as well as transfer money from a Child Trust Fund.

How safe is a Junior ISA?

If your bank or building society is protected by the Financial Services Compensation Scheme (FSCS), up to £85,000 per person (or £170,000 for joint accounts) is safe, even if the company collapses.

It’s worth moving any savings to another bank if you’re going to exceed the above limits to protect your money.

Can I build a decent savings pot with monthly contributions?

If you save £80 a month into a Junior ISA when your child is born, you could end up with a pot worth £31,175 by the time they turn 18 if it grows 8% annually (including fees and fund charges). If the fund grows 5% yearly, you’ll have £23,347.

Alternatively, if you have a lump sum to invest, you could pay this in and leave it or top it up regularly.

Of course, it’s worth stressing that the above amounts are not guaranteed as it’s based on the future performance of your investments, and your child could get less than you put in.

Get expert financial advice

Opening a junior ISA for your child will allow you to build a long-term savings pot that benefits from compound interest and tax exemption.

You won’t even need a lump sum deposit to get started, and can invest up to £9,000 per year into your children’s cash or stocks and shares ISA to create lasting financial security for their futures.

Unbiased will find you an expert financial adviser who can explain more about junior ISAs and give you the best advice on building robust savings pots for your young family members.