A junior ISA is a permanently tax-free savings or investment wrapper aimed at encouraging families to save for their children's futures. Any money you put in one will be locked away until your child's 18th birthday, when it becomes their cash, and will become a standard adult ISA.
You can put up to £4,080 into a junior ISA (£4,128 in the 2017/18 tax year) which can be split whichever way you like between the two types of junior ISAs:
Junior cash ISAs
This is where you put the cash in what is quite simply a tax-free savings account. The money is completely safe (provided it’s a UK-regulated provider and you've no more than £75,000 with that financial institution) and you get a defined amount of interest. The only risk is the money won't grow as quickly as inflation.
Junior stocks & shares ISAs
Here, returns depend on the performance of the stocks or shares you've invested in.
You must be under 18 to have a junior ISA
Any child under 18 can have a junior ISA but how to actually open one depends when they were born.
It's simple for the following groups who can simply open one if they are under 18, if born...
- On or after 3 January 2011
- Before September 2002
Anyone born between 1 September 2002 and 2 January 2011 would have had a Child Trust Fund automatically opened for them by the Government. Since April 2015, these could be converted into junior ISAs.
According to HM Revenue & Customs (HMRC), there are over 700,000 dormant CTFs. Find out where your child's fund is on HMRC's website.
The Government adds that a small number of people born between the CTF dates weren't eligible for them (for example, if they weren't UK citizens at the time) - they'll be able to apply for junior ISAs now.
You can convert child trust funds into junior ISAs
The rules changed in April 2015 so anyone with a child trust fund can convert it to a junior ISA. This is a major boost for those with a cash CTF where rates tend to be far worse than junior ISA rates as many banks and building societies had abandoned CTFs, instead concentrating their best rates on newer junior ISAs.
It means those trapped in old accounts can switch to far better payers.
If you don’t use your allowance, you lose it
Kids can save £4,080 per tax year in a junior ISA (£4,128 from April 2017). The tax year runs from each 6 April to the following 5 April, and it's important to remember you'll lose unused allowances (or portions of them) for good. However, once in the children's ISA wrapper, they remain efficient year after year.
You can only open one junior cash ISA and/or one junior stocks and shares ISA per tax year
You can only open one junior cash ISA and one junior shares ISA per tax year, and you can split the £4,080 allowance between them as you wish. You can transfer providers as much as you like, but can only hold one of each type at any one time.
Those aged 16 and 17 can have both a junior ISA and adult cash ISA or Help to Buy ISA
When a child turns 16 they can also open a normal cash ISA OR a Help to Buy ISA as well as a junior ISA (however, they cannot open an adult stocks & shares ISA or a Lifetime ISA until they are 18).
So 16 and 17-year-olds can have a bigger tax-free savings allowance than any other group. At 18, any normal cash ISAs can be merged with the ex-junior ISAs, providing one of them accepts transfers in