7 Essential Things Every New Parent Should Know About JISAs

Junior ISAs have become one of the most effective ways to build a nest egg for your child’s future, but what should you know about junior individual savings accounts before you begin making your first deposits? 

With more than 1.25 million parents now saving or investing using Junior ISAs, it’s clear that they’ve already become a leading way to put money aside for children in the United Kingdom, despite only being launched in 2011. 

There’s also plenty of evidence that JISAs are an effective way to build a substantial pot of money for your child, with almost 2,000 children in possession of savings worth more than £100,000. The top 50 investment JISAs in the UK worth an average of £761,000. 

Every parent wants the best for their children as they grow up, and JISAs come with many tax benefits that can help provide them with the best possible start to life as an adult. 

Crucially, Junior ISAs come with many tax benefits, and you aren’t liable to pay any capital gains tax or income tax on your earnings, meaning that you can build your child’s nest egg while keeping all of their savings away from the taxman. 

But what should you know about Junior ISAs before you get started? Let’s take a look at seven essential things to keep in mind: 

1. There are Two Types of JISA

Firstly, it’s important to highlight that there are two types of Junior ISA that you can open, and that the child can only ever have one of each type open at the same time. The good news is, you’re not locked in for their full childhood if you’re unhappy with a provider, transferring to another JISA provider is an available option at any time.

One option is a Junior Cash ISA, which works in a similar way to a bank or building society savings account. This fixed or variable rate of interest will help it grow further thanks to the tax efficiency of the JISA. 

Your other choice is a Junior Stocks and Shares ISA. Instead of working like a savings account, a Stocks and Shares JISA puts your child’s savings into investments like stocks, bonds, and funds. All the profits you make on your investments are free from tax. 

There’s no right or wrong way to save money in a Junior ISA, and cash can be a great option if you don’t want to take on any risk. However, historically speaking, Junior Stocks and Shares ISAs have paid exceptionally well in comparison, but there’s no guarantee that you’ll make a greater profit on your investments. 

2. You Get a £9,000 Allowance Each Year

The far greater levels of tax efficiency are one of the biggest benefits of Junior ISAs, and each tax year your child has an allowance of £9,000 to help build your pot. 

While a £9,000 JISA allowance is lower than the £20,000 that adult ISA holders can save or invest each year, most parents won’t need to worry about exceeding £9,000 in annual savings, and this limit can still set your child up with a substantial pot of money once they turn 18. 

3. JISA Savings are Locked Away

Crucially, any money that you deposit into a Junior ISA is locked away until your child turns 18. This means that whether you’re saving or investing the funds, there’s no way to make a withdrawal a couple of years later if you decide that you need the money back. 

Locking away money can be great news for compounded earnings over time as interest continues to accrue. Still, it’s worth taking a moment to double-check that you’re comfortable enough financially to live with the rate of monthly saving into a JISA if something were to go wrong later down the line. 

4. Anyone Can Save in a JISA

Another great thing about saving with a Junior ISA is that anybody can pay in, whether your friends are looking to give your child a birthday present that they’ll appreciate in later life, or your parents want to help out in saving for their grandchildren. It’s a helping hand, so check whether your JISA provider offers this as part of their service.

While JISA account managers must be a parent or legal guardian, there are no limits on how many close friends or family members you can invite to contribute to it (if the provider can facilitate it), meaning that you can welcome as much help as you would like in building their nest egg. 

5. Control can be Passed When Your Child Turns 16

Of course, all the money that is made with a Junior ISA belongs to your child. While it’s your responsibility as their parent to open and manage the account, you’ll be doing so with your child’s best interests in mind.

However, once your child turns 16, they can technically take control of the account and how the money is invested, if the provider facilitates this. This can help them to understand their savings better and learn some financial literacy firsthand, but they will be unable to withdraw any of their savings until they reach 18 years of age. 

6. Keeping on Top of Inflation is Important

As a new parent, if you open a Junior ISA for your child, your biggest challenge will be to keep on top of inflation. This is particularly true for Junior Cash ISA holders, but it can apply to any JISA. 

You need to make sure you’re earning more in your JISA than the rate of inflation, otherwise your child will be losing out on the purchasing power of their money in real terms. Be sure to check your child’s returns compared to inflation each year and make adjustments if you’re concerned about losing out on their money’s value. 

7. Junior ISAs Change Upon Turning 18

It might seem like a long way in the future now, but it’s worth knowing how your child’s Junior ISA changes when they turn 18 years old. 

If they decide to take no action on their money, most providers will automatically convert their JISA into an adult Cash ISA or Stocks and Shares ISA, keeping their savings/investments intact. 

When this happens, they’ll automatically become the registered contact associated with the account and receive direct correspondence from providers about their funds. They’ll also be eligible to make a withdrawal or to take all of their money out if they so wish. 

Preparing Your Children for Adulthood

Junior ISAs hold many benefits for your children beyond the wealth they can provide to help them take their first steps in adulthood. 

One great advantage is that JISAs can provide your children with a great hands-on experience of saving and investing, improving their financial literacy and preparing them for later life. 

Whether you choose to save or invest with a Junior ISA, it can be the perfect way to support your children when they need it the most. JISAs can help your loved ones to achieve their ambitions in life, and is one of the best ways to build a nest egg for the future.