Top Junior ISAs
2.5% tax-free kids' savings
Junior ISAs are tax-free savings accounts which under-18s (or their parents) can save or invest up to £9,000 this tax year. In this fully updated guide, we tell you the advantages and disadvantages of junior ISAs, and then have a list of the top-pick accounts.
What is a junior ISA?
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 £9,000 into a junior ISA in the 2021/22 tax year which can be split whichever 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 an always tax-free savings account. The money is completely safe (provided it's in a UK-regulated provider and you've no more than £85,000 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.
- Junior stocks & shares ISAs. Here, returns depend on the performance of the stocks or shares you've invested in.
The nine junior ISA need-to-knows
Everything you need to know about how junior ISAs work...
Any child under 18 can have a junior ISA but how to actually open one depends when they were born.
If your child was born after 3 January 2011, it's simple – just find the top junior ISA and open it for them (or get them to open it if they're 16 or 17).
However, any under-18 born before 2 January 2011 would have had a Child Trust Fund automatically opened for them by the Government. These CTFs can now be converted to junior ISAs, and it's usually a good idea to do that.
A few under-18s born before January 2011 may not have had a CTF opened for them (for example, because they weren't UK citizens at the time). If that's the case, they'll be able to apply for junior ISAs now.
Who controls the junior ISA – is it me or my child?
Until the age of 16, parents or legal guardians are entirely in charge of paying money in, picking the providers and the type of junior ISA (cash or shares).
At 16, the child has the opportunity to take charge of these decisions if they want to – but the money is still untouchable until they hit 18.
Anyone with parental responsibility for the child can open an account. Usually these are the child's parents, but even grandparents if they're legal guardians of the child. However, ANYONE is allowed to put money into the account.
2. For most people junior ISAs AREN'T worth putting new money in unless they pay more than normal kids savings
Junior ISAs used to be a big thing as it meant that the savings interest you got would never be taxed. But, this is no longer such a big thing. Children are taxed just like adults, and just like adults that means that if they've no income they can earn up to £18,500 a year from savings without paying tax on it (that's the £12,500 personal allowance + £5,000 starting savings allowance + the £1,000 personal savings allowance (PSA)).
Even in the unlikely event they have real income, the personal savings allowance 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. They'll earn more than £100/yr in interest from money given from parents. 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.
Once the child earns more than £100 in interest, the whole lot is taxed at the parent's tax rate (though 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 their PSA then the interest 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. If rates change and kids savings pay more later, you won't be able to withdraw it and shift it there.
Any under-18 born before 2 January 2011 would have had a Child Trust Fund automatically opened for them by the Government.
If your child has a child trust fund, you can now 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. However, it's worth noting that not all junior ISA providers accept transfers from CTFs, so you'll need to check before you apply.
Full the full pros and cons (including why it's not always best to transfer investment CTFs, see the Child Trust Funds guide).
Don't know where your Child Trust Fund is saved? There are an estimated one million lost Child Trust Funds, according to charity the Share Foundation, and HMRC has a tool to track them down.
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 even if you've planned the cash to be for a home deposit for your child, if they want to spend it on partying, you can't legally stop them. Saving in your own name could be safer.
What happens to the junior ISA when my child turns 18?
Once the child turns 18, the junior ISA automatically rolls over into a normal adult ISA, and they will retain whatever split between cash and investments existed at that time.
From then on, the account holder (ie your newly-minted adult child) will be able to add cash up to whatever the prevailing ISA allowance is at the time – currently £20,000. It can be split however you chose to between a cash ISA (including a Help to Buy ISA), a stocks & shares ISA, an innovative finance ISA and a Lifetime ISA.
The interest rate (or investment types) the junior ISA will be rolled into is entirely up to your provider. So check the rate at the time, and if it's poor, remember you have a right to transfer it.
To make sure the adult ISA gets set up, the child should provide the bank with their National Insurance number, so normal ISA set-up procedures can be adhered to, before the adult ISA opens at age 18. See the Cash ISA Guide for full details of how they work.
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 Hargreaves Lansdown and Beanstalk guides may be useful.
Or you can try comparison site MoneySupermarket for a non-exhaustive list of providers.
6. If you don't use your annual junior ISA allowance, you lose it (but you get another allowance next year)
Kids can save £9,000 per tax year (for 2021/22) 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.
Yet there's no obligation to use your kids' junior ISA allowance, or to pay a minimum amount in each year to keep the account active. The junior ISA will stay open whether you use it or not.
You can only open one junior cash ISA and one junior shares ISA per tax year, and you can split the £9,000 allowance between them as you wish. So if you want to deposit £4,500 into a junior cash ISA and £4,500 in a junior stocks & shares ISA you can do this – providing you don't go over the £9,000 limit. You can transfer providers as much as you like, but can only hold one of each type at any one time.
If moving from cash to investments, or vice versa, you can keep the original account as you'll still only have one of each. If moving to a different account within the cash ISA wrapper or within the investment ISA wrapper, the original account will close so you'll only have one.
In future tax years, you must either deposit new money in the same account or, if you choose another account, you'll need to transfer all your money from previous years to it.
There's nothing stopping you switching between junior ISA providers. In fact, to make sure you're getting a top rate all the time, this will be essential, especially for cash JISAs.
And you can also switch between the two ISA types – cash JISAs and stocks & shares JISAs – if your saving or investing priorities change too. Yet it's not as simple as switching a standard savings account, as transferring an ISA is technical.
But, as long as you abide by our golden ISA transfer rule, it should go smoothly:
Never withdraw the money yourself if you're transferring! You'll immediately lose all the tax benefits.
Instead, speak to the new provider and fill out a transfer form. Your new provider should then sort it all out, including contacting your current provider, and moving the money over for you.
It's worth noting with a junior ISA that if you're transferring from cash JISA to another cash JISA provider, you'll need to transfer the whole amount of money in the JISA account, you can't leave some with the old provider and take some over to the new one, as you can't have more than one cash JISA open at once. The same principle applies to stocks & shares junior ISAs too.
However, you can hold one cash junior ISA and one stocks & shares junior ISA at the same time, so if you've had all your child's savings in one of them, you can split it and transfer some to the other type.
When you're ready to transfer, just open the new JISA account and tell the new provider the details of your old JISA. It'll notify your old provider, and will handle the transfer for you.
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.
If you are going to open a junior ISA for an older child, why not do the process with them, talking through the decisions? It's a great form of practical financial education.
See Teen Cash Class guide for more ideas.
Top junior cash ISAs
Junior cash ISAs – what we'd go for
At the moment, Dudley Building Society pays the top rate of 2.5%, and accepts transfers in from Child Trust Funds as well as from existing Junior ISAs.
You'll need to save at least £2,500 to get this rate though, so if you're saving less, take a look at Coventry Building Society's option. It pays a slightly lower rate of 2.25%, but lets you save from £1.
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