What is a Junior Investment ISA?
You're thinking about investing in your child's future by opening a Junior Investment ISA - but what are the main considerations you need to think about before you open an account?
As a parent, you want the very best for your child’s future.
If you can put aside money for them to help set them up for this future, then you want to make the most of those funds.
What is an Investment JISA?
A Junior Investment ISA is a form of Stocks and Shares ISA which allows you to invest in your child’s name, giving them a leg-up into the stock market. These are an opportunity for under-18s to enjoy the benefits of long-term tax-free savings.
These are investment accounts where the money is invested, and the capital gains made on returns from the investments are tax-free. This way, your child’s savings have access to a wider range of investment types (like equity funds/investment trusts). Within the scope of the yearly limit, this provides an avenue for tax-free investment for children.
What are the rules?
We’ve broken down the key rules that you need to bear in mind if you are thinking of opening an Investment JISA for your child.
- You can open a Junior Investment ISA if your child is under 18 and a resident in the UK.
- Only a parent or guardian can open an account for a child.
- Anyone can put money into the account – grandparents, friends, cousins alike.
- You can open both a Junior Stocks and Shares ISA and a Junior Cash ISA for your child – but if you are putting money into both, you need to keep this amount below the annual limit.
- Your child won’t have access to the money until they are 16. At this point, they’ll be able to manage the funds, and they’ll be able to withdraw the funds/sell the investments when they are 18.
How do I open a Stocks and Shares JISA?
You can chose to open a JISA in your child’s name - the account can only be opened by a parent or guardian. The majority of JISAs can be opened with a deposit of only £1, so getting started with this form of saving is very easy. Some providers enable you to open your account online, so this will minimise fuss.
How much can I invest?
Like all ISAs, there is a cap on how much you can put into this account which is applied each tax year.
For tax year 2019/2020, you can invest up to £4,368 into any Junior ISA account.
My child is older (16-17) – can they contribute to the account?
Once a child is 16-17, and maybe earning a wage from a part-time job, they can put money into an adult cash ISA in addition to their Junior ISA - but they cannot open an adult Stocks and Shares ISA.
Also, once a child reaches 16 they are able to manage the funds in their ISA.
Once they turn 18, they are an adult and have full access to their ISA – the money will either be paid to a bank account held by the child, or be transferred to an adult ISA in the child’s name.
Should I open a Cash JISA or an Investment JISA?
This account will give your child better returns than a Junior Cash ISA – but since the stock market can go down instead of up, they may get less money back than you initially invested. This is the risk with any Stocks and Shares ISA.
Are there any fees?
If you are thinking of opening a Junior Investment ISA for you child, you need to be aware of any costs you might incur as these might decrease the returns you can expect from your child’s account.
Although the fees charged will vary from provider to provider, the majority will charge the following:
- Transfer charges
- Dividend investment fees
- Buying charges
- Selling charges
- Fund switch charges
- Bid/offer spread
- Fund managers charges
- Platform charges
- Transfer out fee
Is my investment for my child safe?
The short answer to this is that no Investment ISA is 100% safe. The fluctuations in the stock market can go down as well as up, so you run the risk of losing money due to a poorly performing investment.
Junior Investment ISA assets are held by a third party, such as an authorised investment firm, on behalf of the investor. If the authorised investment firm collapses, the FSCS will pay compensation up to £50,000 per person.
The FSCS will not pay compensation purely because the value of the investment has fallen. This is because the capital is at risk with any investment.
For more information on the safety regulations of Stocks and Shares ISAs, read our blog on how safe Investment ISAs are.