Raising a child can be expensive, costing over £150,000 for a couple and even more for a single parent. This can be a worry for parents, who want to provide their children with the best possible start.
In order to provide your children with a future free from financial worries, you may be considering different saving options. A popular method is a junior ISA, which if you can find the extra funds, can be an effective way to build a nest egg for your kids.
Want to know more? Here is a basic guide to get you started.
What is a Junior ISA?
An ISA (Individual Savings Account) is an investment account that allows you to earn interest on savings. An efficient way to save, ISAs offer a tax-free annual allowance. For junior ISAs (also known as JISAs) in 2018/19, this savings limit is £4,260. This increases annually with inflation and will go up to £4,368 for the year 2019/20.
Who Can Open a Junior ISA?
A junior ISA can only be opened by a child’s parent(s) or guardian(s), but anyone can pay into the account. Additionally, access to the account will automatically be given to your child on their 18th birthday.
Cash or Stocks and Shares ISA?
There are two types of junior ISAs. The first is cash. These operate the same as a savings account, where you can make deposits and earn interest on the balance.
The second is stocks and shares. These allow you to invest in bonds, shares and trusts, with any interest earned exempt from tax. Over the long term, they can offer a better return, but they do pose more risk than cash ISAs. Learn more about stocks and shares ISAs here.
How Many Can You Open?
With an adult ISA, you can make use of several accounts and transfer funds between ISAs, should you find an account with a better rate of interest. Junior ISAs, on the other hand, are subject to different rules.
With a JISA, you can only open one of each type. This means each child can have one cash and one stocks and shares ISA.
A JISA can be a good way to save for your child’s future, allowing you to earn tax-free interest. This could provide funds to set them up later in life, such as to help finance a degree or as a deposit for their first home, for example.
Hopefully this basic guide has provided some helpful tips. For more information, take a look at the Government website.