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May 2013

What is the best ISA option for children?

Junior ISAs can offer a great way to save for your child or grandchild's future.

Unlike many savings accounts, the money in a junior ISA stays tax-free once the child reaches adulthood.

What's more, any adult can pay into a junior ISA, which means that it's easy for friends and relatives to give financial gifts.

The account can be opened on behalf of the child, and once they're 16, they can manage it themselves. However, they can't access the money until their eighteenth birthday. If the child decides to keep the account once they reach 18, it will automatically be converted to a regular cash ISA or investment ISA.

Cash or investment?

The 2013/14 tax year allowance for junior ISAs is £3,720. This allowance can either be put into a junior cash ISA or divided between a junior investment ISA and a junior cash ISA in whatever proportion you wish. Which type of junior ISA you choose - or whether you choose to take advantage of both - will depend on the financial goals you have in mind for your child.

For those with young children, a junior investment ISA could be an option to consider for the years ahead, as exposing your money to the stock market generally increases your chances of higher returns in the long term. If, on the other hand, you've got a teenager who's likely to be heading off to college or university in just a few years' time, a junior cash ISA might be a better short-term choice.

What happened to Child Trust Funds?

Prior to the launch of junior ISAs in November 2011, Child Trust Funds offered a Government-backed savings vehicle for children born between 1st September 2002 and 2nd January 2011. If your child was born between these dates, they won't currently be eligible for a junior ISA. However, the 2013 Budget included plans to allow transfers from Child Trust Funds to Junior ISAs at some point in the future. In the mean time, you can continue to put money into an existing Child Trust Fund, or save in your own name on your child's behalf.

Click here to compare a selection of junior ISAs.

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. Tax treatment depends on your individual circumstances and may change.

Some structured investment plans are not capital protected and there may be the risk of losing some or all of your initial investment. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated, in which case you may not be entitled to compensation from the Financial Services Compensation Scheme (FSCS). In addition, you may not get back the full amount invested if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

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