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Top Junior ISAs

3.25% tax-free kids' savings

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Dan and Eesha | Edited by Martin

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Junior ISAs for under 18sJunior ISAs are tax-free savings accounts millions of under-18s can save or invest up to £4,080 in this tax year. They then remain tax-free until their 18th birthday, when it gets converted into an adult ISA.

This is a fully-updated guide focusing mainly on the best buy children's junior cash ISAs, but we also cover many of the key points around junior stocks & shares ISAs.

10 Junior ISA need-to-knows

  • A junior ISA is a tax-free way to save for your child

    A junior ISA is a permanently tax-free savings or investment wrapper aimed at encouraging families to save for their children's futures. Any money you put in one will be locked away until your child's 18th birthday, when it becomes their cash, and will become a standard ISA.

    You can put up to £4,080 into a junior ISA which can be split however way you like between the two types of junior ISAs:

    • Junior cash ISAs. This is where you put the cash in what is quite simply a tax-free savings account. The money is completely safe (provided it’s a UK-regulated provider and you've no more than £75,000 with that financial institution) and you get a defined amount of interest. The only risk is the money won't grow as quickly as inflation. See junior cash ISA best buys below.
    • Junior stocks & shares ISAs. Here, returns depend on the performance of the stocks or shares you've invested in.
    Quick question

    How do junior ISAs differ from standard adult ISAs?


  • You must be under 18 to have a junior ISA

    Any child under 18 can have a junior ISA but how to actually open one depends when they were born.

    It's simple for the following groups who can simply open one if they are under 18, if born...

    • On or after 3 January 2011
    • Before September 2002

    Anyone born between 1 September 2002 and 2 January 2011 would have had a Child Trust Fund automatically opened for them by the Government. Since April 2015, these could be converted into junior ISAs.

    According to HM Revenue & Customs (HMRC), there are over 700,000 dormant CTFs. Find out where your child's fund is on HMRC's website.

    The Government adds that a small number of people born between the CTF dates weren't eligible for them (for example, if they weren't UK citizens at the time) - they'll be able to apply for junior ISAs now.

  • For most people Junior ISAs AREN'T worth putting new money in unless they pay more than normal kids savings

    Children are taxed just like adults, and just like adults that means that if they've no income they can earn up to £17,000 a year from savings without paying tax on it (that's the £11,000 personal allowance + £5,000 starting savings allowance + the new £1,000 personal savings allowance (PSA)).

    Even in the unlikely event they have real income, the personal savings allowance, introduced in April 2016, allows them to earn up to £1,000 a year interest tax free (unless they become higher rate taxpayers in which case… WOW!)

    So these days there are only three main reasons you'd put new money into a junior ISA rather than the top children's savings accounts:

    1. You want to lock the cash away until they're 18. Junior ISAs mandate this so it's an easy way to do it. Though as we explain below, you need to be prepared that this means on their 18th birthday, the money is theirs to do with as they please.

    2. If it's money given from parents they can only earn £100/yr from it in normal savings. Junior ISA savings are tax free and remain tax free year after year.

    Yet money given to a child by each parent or step-parent (not grandparents, aunts, uncles etc) which generates more than £100/year in interest in normal (non Junior ISA) savings will be paid at the parent's tax rate.

    So the £100 allowance is on a 'per parent' basis, rather than a 'per child' basis. The aim's to stop parents using their kids' tax-free allowance for an extra allowance.

    Once the child earns more than this, the whole lot is taxed at the parent's tax rate. Yet even then if the parent is within their personal savings allowance and the child’s savings don't take them over, then it'd still be tax free.

    Yet if the child goes over the £100 limit and the parent is over the PSA then their savings would be taxable – in which case saving it in a Junior ISA would be a tax benefit, as then it's tax free. For a full explanation, read how kids' tax works.

    3. If Junior ISAs pay more than normal savings.  Even if there's no tax advantage for your child, then if the rate is higher, as it sometimes is, then you could save in a Junior ISA for them.  So compare the Junior ISA rates below to the top kids savings rates.

    If Junior ISAs pay more, so you’re thinking of it, do remember the money is locked away until 18. So if rates change and kids savings pay more later, you won't be able to withdraw it and shift it there.

  • You can convert child trust funds to junior ISAs

    The rules changed in April 2015 so anyone with a child trust fund can convert it to a junior ISA. This is a major boost for those with a cash CTF where rates tend to be far worse than junior ISA rates as many banks and building societies had abandoned CTFs, instead concentrating their best rates on newer junior ISAs.

    It means those trapped in old accounts can switch to far better payers. Full the full pros and cons (including why it's not always best to transfer investment CTFs, see the Child Trust Funds guide).

  • The money's locked away until your child's 18 - and then it's their cash

    As soon as you put any cash in a junior ISA, it's locked away until your child reaches 18, at which point the cash becomes theirs. So consider carefully whether you're happy with not having control of what it's spent on.

    This is a key point of where you decide to save. With normal kids' savings, you can access cash at will (until control of the account passes to your child, which tends to be around age 16). But, with a junior ISA, it's locked away - completely inaccessible - until they turn 18. You also don't have the same control about what happens to the cash. Know that...

    It's their money. At age 18, they can do what they want with the cash

    From the day the cash goes in a junior ISA, it's the child's money, not the parents'. So you must remember at age 18, whatever you've planned for the money - such as building a mortgage deposit for them - the money's actually entirely your child's, and they can do WHATEVER they want with it.

    So while you may have a cute toddler now, they could grow up to be a rebellious 18-year-old. Even if that's just a phase, when the money in junior ISAs finally becomes accessible, on their 18th birthday, it becomes theirs to do as they will.

    To take it to its extreme, here's a question Martin was asked: "Could I stop them if they wanted to buy drugs with it?" The answer is no.

    So if you're saving for a university fund, for example, (see our Don't Pay Tuition Fees Upfront guide) there's a risk with using a children's ISA that you just don't have if you're using a normal savings account. Saving in your name (assuming the interest doesn't take you over your personal savings allowance) could be safer.

  • Should I save or invest?

    There's no easy way to decide, and no right or wrong answer, it's all about your attitude to risk - and also how old your child is.

    The younger they are, the more likely investing will beat saving, as over longer periods the stock market tends to outperform cash. Yet there's no guarantee. If your child is close to 18, you're more at risk of the vagaries of the stock market if they plan to withdraw it straight away, as they could incur a big loss if investments have tanked.

    Looking to invest? It's important to note MoneySavingExpert.com doesn't cover where you should place your investments - it's not our field of expertise. Instead, if you're thinking of investing, these junior shares ISA guides may be useful: Hargreaves Lansdown (printable booklet), Citywire, The Telegraph.

  • If you don't use your allowance, you lose it

    Kids can save £4,080 per tax year in a junior ISA. The tax year runs from each 6 April to the following 5 April, and it's important to remember you'll lose unused allowances (or portions of them) for good. However, once in the children's ISA wrapper, they remain efficient year after year.

  • You can switch providers to boost the rate

    You can switch to a new junior ISA account just as you can do an ISA transfer with an adult ISA. Just open a new account and tell the new provider the details of your old ISA (if it accepts transfers).

  • You can only open one junior cash ISA and/or one junior stocks & shares ISA per tax year

    You can only open one junior cash ISA and one junior shares ISA per tax year, and you can split the £4,080 allowance between them as you wish. You can transfer providers as much as you like, but can only hold one of each type at any one time.

  • Those aged 16 or 17 can have both a junior ISA AND an adult cash ISA or Help to Buy ISA

    When a child turns 16 they can also open a normal cash ISA OR a Help to Buy ISA as well as a junior ISA (however, they cannot open an adult stocks & shares ISA or a Lifetime ISA until they are 18).

    So 16 and 17-year-olds can have a bigger tax-free savings allowance than any other group. At 18, any normal cash ISAs can be merged with the ex-junior ISAs, providing one of them accepts transfers in - see the Cash ISA Transfer guide for full details.

Best buys: Junior cash ISAs

These are the current top-paying junior cash ISAs - though always check your local building society, it may have branch-only offers for local customers.

Nationwide

Joint top junior cash ISA (for new money & transfers)

Nationwide Building Society - 3.25% variable

This Nationwide account is not only the top junior payer, but it beats all adult cash ISAs too with its 3.25% AER. While the rate is the same as Coventry below, we've put it ahead as Nationwide's larger branch network means it may be easier to manage.

3.25,1
Need-to-knows
  • The rate is a clean one (ie, there's no temporary bonus). That means there is less chance of it suddenly plummeting in a year or so, though it also means there is no rate guarantee in the meantime so the rate could slide at any time (so keep an eye on it and be ready to switch).

  • The account can be opened in a branch or online if you already hold a Nationwide product, and it can be managed online or in branch.

  • Nationwide Building Society has the full £75,000 UK savings protection. See more information about the Savings Safety rules.

SUMMARY:

Rate: 3.25% AER | Min deposit: £1 | Access: Online or branch | Interest paid: Annually | Allows previous ISA transfers?: Yes

Coventry Building Society

Joint top junior cash ISA (for new money & transfers)

Coventry Building Society - 3.25% variable

The Coventry Building Society Junior Cash ISA also pays a clean 3.25% AER on new money and transfers. But unless you live near a branch you'll need to open the account by post or on the phone.

3.25,1
Need-to-knows
  • The rate is a clean one (ie, there's no temporary bonus). That means there is less chance of it suddenly plummeting in a year or so, though it also means there is no rate guarantee in the meantime so the rate could slide at any time (so keep an eye on it and be ready to switch).

  • Coventry BS shares its £75,000 FSCS protection with Stroud & Swindon Building Society. See more information about the Savings Safety rules.

SUMMARY:

Rate: 3.25% AER | Min deposit: £1 | Access: Post, phone or branch | Interest paid: Annually | Allows previous ISA transfers?: Yes

Mansfield Building Society

Next best junior cash ISA on new money and transfers

Mansfield Building Society - 3.05% variable

The Mansfield Building Society also allows you to transfer in old Junior ISAs and child trust funds like the accounts above, but the rate - 3.05% AER - is a touch lower.

3.05,1
Need-to-knows
  • The rate is a clean one (ie, there's no temporary bonus). That means there is less chance of it suddenly plummeting in a year or so, though it also means there is no rate guarantee in the meantime so the rate could slide at any time (so keep an eye on it and be ready to switch).

  • Mansfield BS has the full £75,000 FSCS protection. See more information about the Savings Safety rules.

SUMMARY:

Rate: 3.05% AER | Min deposit: £1 | Access: Post or branch | Interest paid: Annually | Allows previous ISA transfers?: Yes

Q&A Junior ISAs

  • Who is actually in charge of the account?

  • Do I have to pay money in every year?

  • Can I open multiple children's ISAs with different providers?

  • Can I split the allowance between junior cash ISAs and junior stocks & shares ISAs?

  • How can I help financially educate kids in the process?

  • What happens when my kids turn 18?