Next month sees the launch of junior ISAs, a new type of savings account which will allow parents to save a tax-free £3,000 a year for their young ‘uns.
This means, that if you’ve got £3,000 a year you can afford to put aside (realistically, most of us won’t) then you could potentially be able to give £95,000 for your children by the time they’re 18. In fact, that figure could be even higher.
As with ‘grown up’ ISAs, there is an option to go for a standard ISA or a riskier (but potentially more lucrative) stocks and shares option. Junior ISAs are effectively replacing Child Trust Funds, a scheme introduced by Labour when in power. Junior ISAs have a far higher annual limit (£3,000 rather than £1,200) of what you can pay into than Child Trust Funds, but now there will be no government contributions to a child’s savings.
Children born on or after 3rd January 2011 or under 18′s born before September 2002 are eligible to for a junior ISA account.
Until the child is 16, it will be looked after by a parent or gurardian. At 16, responsibility goes to the child – or rather, at this age, a potentially surly adolescent. The £3,000 a limit can be spread between standard junior ISAs and stocks and shares at the discretion of the parent or guardian. If the child already has a CTF, then it won’t be possible to transfer what is in it to a Junior ISA. It’s not possible to get at the cash before the child’s 18th birthday, so if you want greater flexibility, then it might be worth looking at alternative ways of putting money aside. Stocks and shares ISAs throw up their own ethical questions, too.
Jeremy Cryer, resident savings expert at Gocompare.com says: “Those thinking of investing in a stocks and shares ISA for their child may want to consider the ethics of their investment and thus the type of shares they invest their child’s funds in. For example, investing your child’s future funds in the arms, gambling or alcohol and cigarette industries may not sit right in your moral mind. Instead you could opt for an ethical ISA.” If in doubt over junior ISAs it’s worth seeking the advice of an independent financial advisor.