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Top Junior ISAs

3.25% tax-free kids' savings

By Dan and Eesha | Edited by Martin

Updated Weekly

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-efficient way to save for your child

    A junior ISA is a tax-efficient 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. The gains are largely tax-free but not completely tax-free, as dividend income is taxed at 10%.
    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, see the section immediately below for more.

    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.

  • Not everyone should bother with junior ISAs

    So the Government gives away this tax-free allowance, yet MoneySavingExpert.com suggests it may not be worth it. Huh?

    While we normally say a cash ISA is the first place you should save if you are a tax-paying adult, children's ISAs are only of limited benefit.

    So here are the two big questions to help you decide.

    • Question 1: Would your child pay tax on savings anyway?

      The big sell of opening a junior cash ISA is the fact the interest is tax-free. This will often pay substantial dividends, provided the savings would've been taxed anyway. But...

      Most kids don't pay tax anyway

      Many people think all children don't pay tax. That isn't true. Everyone in the UK under 65 can earn up to £10,600 per year whether wages or interest, before paying income tax. Yet most kids, barring Justin Bieber types, don't get anywhere near this. Therefore, by filling in an R85 form when any savings account's opened, the money will be paid tax-free.

      Plus, open a Children's Bond with NS&I, and children under 16 can save another £3,000 without paying tax on the interest earned.

      The two exceptions...

      If a big chunk of cash comes from parents

      Saving for the long term - junior ISAs stay tax-free in adult life

    • Question 2: It's their cash - are you happy with letting go?

      So at this point, you may be thinking: "I'm not sure my kids will pay tax, but it seems safer to assume they might, so I'll use a junior ISA." With a tax hat on, that’s sensible, but you must also factor in the following.

      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.

      Carefully consider whether you want your child to have complete autonomy over all the cash you put in once they turn 18. Saving in your name, especially if you're not already using your own tax-free cash ISA, could be the safer option.

      You have to lock your cash away in an ISA to get the full tax free benefits

      The money is locked away

      This could be seen as a good or bad thing. Much like a pension, once the money is saved away in a junior ISA, that's it. Neither you nor your child can access it until they're 18 - except if he or she becomes terminally ill or dies.

      Many parents may see this as a positive if they don't want their children to have access in the short term - or even stifles any temptation to use it yourself. The bad news is, it means if you're short of cash and need it, you can't take it.

      The junior ISA choice is limited

      While junior ISAs have flexibility - you should usually be able to change from cash to shares without problem (and vice versa) - this is a fairly new product type, so the choice of savings and investments is fairly limited. Though the rates are fairly decent there are limited options to chose from.

      So overall, you need to balance any gain from the tax boost against the limits a junior ISA will place on the cash. Think carefully about what your aim is when putting the money away.

  • 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.

    If that scares you, you could open a normal, accessible child's savings account; or, if you want to keep total control, you can save in your own name (although you'll pay tax at your marginal rate).

  • 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

    When a child turns 16 they can also open a normal cash ISA as well as a junior ISA. However, they cannot open an adult stocks & shares 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

Halifax

Top rate for 16-17 year-olds or if parent holds a Halifax ISA too

Halifax - 4% variable

The Halifax Junior Cash ISA pays 4% AER if the registered adult on the account holds any Halifax ISA with at least £1 in it, or if the child is aged 16-17 when the account is opened.

4,1
Need-to-knows
  • If you don't have an adult ISA (currently paying 0.6%) with Halifax you'll earn 3% on the Junior ISA.

  • The account can be opened online or in branch but can only be managed in branch.

  • Halifax shares its £75,000 FSCS protection with Bank of Scotland, BM Savings, Intelligent Finance, Saga, and AA savings. See more information about the Savings Safety rules.

SUMMARY:

Rate: 4% AER | Min deposit: £1 | Access: 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?