Junior ISA Explained

iStock 000004568751XSmall 150x150 Junior ISA Explained

What is? | Who is it for? | How does it work? | Cash JISA | Stocks and Shares JISA | Are my savings and investments safe?
The Government is changing the way that you can save for your child’s future. Doing away with the old system of the Child Trust Fund, the Junior Individual Savings Account, better known as a Junior ISA or JISA, is a new account for saving and investing money for children.

The JISA was made available on 1 November 2011 and works in the same way as an adult ISA. JISA allow you to save up to a certain amount of money for your children each year, safe in the knowledge that your savings will not be taxed.

What is a Junior ISA?

Is simply an Individual Savings Account aimed at parents who wish to make savings or investments for the child’s future. It’s a great way to put some money aside for expenses like costly university fees or first cars.

Who is it for?
You can open a JISA for your child as long as:
- Your child is under the age of 16
- Your child lives in UK
- Your child did not qualify for a Child Trust Fund

Read more on who can contribute to the Junior ISA

How does a it work?
There are two different kinds: a Stocks and Shares, and a Cash JISA.

Because the JISA works as a tax-efficient vehicle for saving and investing money for children, there is a limit to the amount of money that be paid into the account, which is currently £3,600 per year.

Cash Junior ISA

A Cash JISA allows you to save up to a certain amount of cash each year for your child. The money within the account will increase with interest and will remain entirely tax-free.

Your child will not be able to withdraw money from the account until he or she reaches adulthood. That way you can be sure your savings aren’t being spent on the latest electronic devices! Money from a Cash JISA can be transferred into a Stocks and Shares Junior ISA.

Stocks and Shares
A Stocks and Shares Junior ISA will allow you to save investments like bonds and shares. As with a Cash JISA, a Stocks and Shares also has the £3,600 annual limit on what cvan be paid into the account. You are not able to transfer money from a Stocks and Shares JISA into a Cash JISA. Although you can hold cash in a Stocks and Shares, your service provider might charge you and the cash may also be taxed.

Are my savings and investments safe?
Because of the Financial Services Authority (FSA), any savings you make up to £85,000 in a Cash JISA will be protected, even if your chosen financial institution goes bankrupt.

With a Stocks and Shares JISA, your investment will really depend on the performance of the stock market. Your choice of funds within a Stocks and Shares will affect the amount of risk with your investment as well as the level of return you can expect to make. This means that there can be no guarantee that your investment will generate a return.