The new Junior ISA

A recurring question this year from my older clients has been, “Where can I invest money for my Grandchildren?”  Until recently I advised them to wait until we saw what was to replace Child Trust Funds – but now the Junior ISA has been launched and we have full details.  

Junior ISAs are tax-free savings plans designed for the under-18s and launched on 1st November 2011.   Any child is eligible for this new savings plan provided they don’t already have a Child Trust Fund.  Money can be invested into cash, or stocks and shares, and can be switched between different providers.  Plus they can hold cash and stocks and shares at any one time. 

One big difference when compared to an adult ISA is that the junior plan will allow switching from cash to stocks and shares and back again.  You can contribute up to £3,600 in each tax year.  This limit will increase with inflation each year and the first increase is due in April 2013.   Finally, the money is locked into the Junior ISA and cannot be withdrawn until the child reaches 18.  At that point, if the money is not taken out of the account, it will roll into an adult ISA.      

Whilst there were very few providers of Child Trust Funds, it is widely expected there will be a far greater range of Junior ISAs on offer. 

I feel a real benefit will be helping children get in the habit of saving.  By setting up a Junior ISA you will be able to demonstrate the benefits in terms that can be easily understood, and start teaching them financial awareness that will help them throughout their lives. A Junior ISA would make an excellent Christmas gift from a prudent grandparent.