What is a Junior Cash ISA?
Junior Cash ISAs offer each eligible child a tax-free savings account. They are a way for parents, family or friends can contribute funds to help save for the child's future. Junior ISAs first become available in November 2011 to replace the now-defunct Child Trust Fund, which means children who were born during the period in which Child Trust Funds were in operation are not eligible for junior ISAs. However, it is possible to transfer a Child Trust Fund to be transferred in to an ISA.
A Junior Cash ISA can be opened by the child's parent or legal guardian. Once the child reaches 16, they'll be able to manage their own account. However, they won't be able to withdraw funds until they reach the age of 18.
In terms of rules and regulations, Junior Cash ISAs operate on a similar principle to regular Cash ISAs. It's permissible to switch providers, but only one Junior Cash ISA can be held by each child at a time. Unlike Child Trust Funds, Junior ISAs don't involve any Government contribution. The Junior ISA allowance can either be put into a Junior Cash ISA or divided between a Junior Stocks and Shares ISA and a Junior Cash ISA in whatever proportion you wish.
The Advantages of a Junior Cash ISA
There are several advantages to choosing a Junior Cash ISA for your child. We’ve listed some below:
1.It's an easy and convenient way to save tax-free for your child's future - Unlike many savings accounts, the money saved in a junior cash ISA stays tax-free once the child reaches adulthood. If the child decides to keep the cash in the account once they reach 18, it will automatically be converted to a regular ISA.
2.Any adult can pay money into the account - family friends, grandparents, godparents, aunts and uncles can all contribute - making a junior cash ISA an ideal way to save up money given on birthdays and other special occasions without the child being tempted to spend it.
3.The money is locked away until the child turns 18 and cannot be released by either parents or children until this point - a bit like a pension fund. This can be advantageous as it means the child can't blow all their savings on clothes or holidays once they hit the teenage years - and parents won't be tempted to dip in either.
4.If you are in a financial position to make savings on behalf of your child that generate more than £100 per year in interest, this interest will be liable to taxation. If this scenario applies, a Junior ISA may be a good way to make sure your child gets the most from their tax-free savings allowance each year.
The Disadvantages of a Junior Cash ISA
There aren’t many downsides to saving in a Junior ISA but the main two are listed below:
1.Your child does assume full control of the account once they’re 18. This could become an issue if you had a specific idea for what the money would be used for. Such as a deposit or for university. There won’t be anything you can do about this so it may be worth opening a standard account in your name if you anticipate this being a problem.
2.Junior ISAs don’t necessarily have the best rates available. Many standard savings accounts offer a higher rate of interest despite not coming in a tax-free wrapper. Consider which benefit may be more beneficial or instead look for an ISA with the highest interest rate.