Best Junior ISAs

3.6% tax-free kids' savings

junior isa

Junior ISAs are tax-free savings accounts which under-18s can save or invest up to £4,368 in this tax year. This is a fully updated guide focusing mainly on the best-buy junior cash ISAs, but we also cover the key points on junior stocks & shares ISAs.

What is a junior ISA and nine other need-to-knows

  • 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 £4,368 into a junior ISA in the 2019/20 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. 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

    • Junior ISAs are an extension of the existing adult ISA system (see the ISA guide). Once a child holding a junior ISA hits 18, it's automatically rolled over into an adult ISA – safeguarding the tax-free benefit for ever.

      The ISA works in exactly the same way as the junior versions, except that you can save a big £20,000 a year tax free.

  • 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.

    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.

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

  • 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, 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. 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. If rates change and kids savings pay more later, you won't be able to withdraw it and shift it there.

  • 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. 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).

  • 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.

  • 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.

  • Kids can save £4,368 per tax year (for 2019/20) 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 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 one junior shares ISA per tax year, and you can split the £4,368 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.

  • 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.

Top junior cash ISA rate but no online access

The Coventry Building Society junior cash ISA pays 3.6% AER, the top rate currently available, though you can't operate it online so take a look at the accounts below if you want that option. As the rate's variable, it could drop at any time, so keep an eye on it and be ready to switch away if it does.

Rate: 3.6% AER variable
Min deposit: £1
How to open/access: Open by post or in branch (you can order an application pack by phone or online). Manage phone/post/branch
Interest paid: Annually on 30 Sep
Allows previous ISA transfers? Yes
Allows CTF transfers? Yes
Savings protection: Full

Decent rate plus it can be opened and operated online

If you want a junior ISA from a bigger name, another decent option is NS&I, which pays 3.25% AER variable, a smidgeon less than Coventry above. The rate's variable and could drop at any point, so keep tabs on it and be ready to switch away if it does.

Rate: 3.25% AER variable
Min deposit:
£1
How to open/access:
Online
Interest paid:
Annually on 6 Apr
Allows previous ISA transfers? Yes
Allows CTF transfers? Yes
Savings protection: NS&I is backed by the Treasury, so all your money is protected

Another decent rate but no online access

This TSB account also pays 3.25% AER variable. You can't operate it online, but it's a good option if you want a big name. Its variable rate could drop at any time, so keep an eye on it and be ready to switch away if it does.

Rate: 3.25% AER variable
Min deposit: £1
How to open/access: Open in branch only, manage by phone or in branch
Interest paid: Annually on 31 Mar
Allows previous ISA transfers? Yes
Allows CTF transfers? No
Savings protectionFull

Junior ISAs Q&A

  • 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.

  • No. 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.

    Think of junior ISAs like a new motorway that's just opened. You've been given a new road to use – but if you don't have a car, or would rather use a different route, that's fine. It's the same with junior ISAs. If you'd prefer to save in different products, or don't have spare cash, it's no problem – but the road will remain open for the foreseeable future, in case you change your mind.

  • You can only hold one of each type of junior ISA at any one time. However, you are allowed to transfer your money to a different account at any time, as long as you only open one new junior Cash ISA and one junior shares ISA per tax year.

    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.

  • Yes, you can. You can only open one of each type of junior ISA but you can split the allowance between them. So if you want to deposit £2,184 into the junior cash ISA and £2,184 in the junior stocks & shares ISA you can do this – providing you don't go over the £4,368 limit.

  • 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.

  • 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 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 (see the ISA Transfer guide).

    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.

SPOTTED OUT OF DATE INFO/BROKEN LINKS? EMAIL: BROKENLINK@MONEYSAVINGEXPERT.COM