Junior Isas, launched today (1 November 2011), are the new tax-free savings accounts for children under the age of 18 which are replacing child trust funds.
The new Junior Isa accounts will act similarly to cash Isas. They are saving and investment ‘wrappers’, which shield any growth in your children’s cash from both income and capital gains tax. You won’t be able to get one for your child if they already have a CTF.
The Junior Isa annual contribution limit will be £3,600. The new limit will apply until 5 April 2013 and will then be updated annually in line with the Consumer Price Index (CPI). Anybody (e.g. a family member) or organisation will be able to contribute to a child’s Junior Isa account.
Different types of Junior Isa
Both cash and stocks and shares Junior Isas will be available. Children will be able to hold up to one cash and one stocks and shares Junior Isa at a time (two accounts in total).
Junior cash Isas will operate the same as adult Isas with the money paid in will accruing interest according to the rate of interest applied by the provider. The stocks and shares version invests money in equity-based products, including shares and bonds, and the value of the Isa can therefore go down as well as up.
Child trust funds will continue to exist for the time-being, with people able to pay money into them. The annual contribution limit will increase to £3,600 (from the current level of £1,200) from November 2011 in line with Junior Isas.
A boost to saving
Paul Davies, savings analyst at Which?, welcomed the launch: ‘The new Junior Isas will help to encourage parents to save for their children and should give youngsters a good start when they reach the age of 18. It’s a shame that the government contribution, which was an integral part of child trust funds, has disappeared.
‘It is disappointing that providers haven’t really embraced the opportunity to launch these products. So far only Nationwide BS of the large players has unveiled its Junior cash Isa, but hopefully other companies have products in the pipeline.’
- Junior Isas explained – all you need to know about Junior Isas
- Child trust funds explained – your options if you’ve still got a child trust fund
- Which? Best Rate children’s savings accounts – accounts if you’ve used your tax-free allowance