Replacing the Child Trust Fund and officially launched on the 1st November 2011, the Junior ISA (Junior Individual Savings Account) provides for a tax efficient way of saving for your child's future.
The Junior ISA is a long term, tax efficient savings account. With parents, family and friends all able to make regular and ad hoc contributions, the Junior ISA is an easy way to build a nest egg, set aside funds for your child's education or university fees, a deposit on their first house, a year out travelling or even the purchase of their first car. Whatever you choose you can be safe in the knowledge that all interest and capital gains accrued within the Junior ISA are tax-free.
There are currently two types of Junior ISA. You can select from a Cash Junior ISA and Stocks and Shares Junior ISA or both from any Junior ISA provider
Whether you opt for a Cash Junior ISA or Stocks and Shares Junior ISA or both options for your child will depend on your investment attitude and personal circumstances.
For the current tax year April 6 to April 5 (2011/2012) total contributions are limited to £3,600 e.g. £1,800 contributed to a Stocks and Shares Junior ISA will leave you with £1,800 for contribution to a Cash Junior ISA
The Cash Junior ISA is similar to traditional Cash ISAs provided by Banks or Building Societies. All contributions paid into the Junior ISA will accrue interest according to the rate of interest applicable to the Cash Junior ISA
This headline rate will typically be referred to as the AER (Annual Equivalent Rate) which is the annual rate if the interest was compounded (view the full list of Cash Junior ISA providers).
The Junior ISA provider offering the Stocks and Shares Junior ISA will invest in a number of financial instruments including Unit Trusts, Investment Trusts, Corporate Bonds, Gilts, Funds, Equities, Stocks, Fixed Interest Securities and Exchange Traded Funds. Consequently the value of the Stocks and Shares Junior ISA will go up as well as down.
A parent or legal guardian will normally be responsible for opening the Junior ISA, unless the child is aged 16 to 18 in which case they can choose to open a Junior ISA for themselves.
There are a number of Junior ISAs on offer from a whole variety of Banks, Building Societies and Stock Brokers ( we have put together a list to help you find a Junior ISA provider ) and in most cases you can open the Junior ISA online in just a few minutes.
Whilst anybody can add money to a Junior ISA, it will normally be parents, family and friends who will contribute to the Junior ISA. In the current tax year 2011/2012 (April 6 to April 5) contributions are limited to £3,600 however the £3,600 limit will only remain in place until April 5th 2013, after which time it will be updated annually inline with the consumer prices index (CPI).
The important thing to remember is that although the money in the Junior ISA belongs to the child, withdrawals are not permitted until they are 18 (unless they becomes terminally ill or die) at which time the Junior ISA automatically converts to a regular individual Savings Account (ISA).
The person who opens the Junior ISA has full responsibility for managing the Junior ISA until the child reaches 16. This can however be changed to another parent or legal guardian at any time.
Depending on the Junior ISA provider and whether you have a Cash Junior ISA and / or Stocks and Shares Junior ISA you will usually have several different options available to you for managing the Junior ISA. These include online, by telephone, by post or even in person at the local branch.
Unlike adult Isas, you must choose just one provider at a time to manage your investment Jisa and one provider to manage your cash Jisa. For example, you cannot have cash products with Halifax in 2011 and Santander in 2012 unless you transfer the balance across.
Should you wish to, you can change the Junior ISA provider or type of Junior ISA account at any time. You will of course need to check the terms and conditions of your child's Junior ISA as you may be required to give written or verbal notice.
Whilst you are unlikely to see fees and charges associated with the Cash Junior ISA in reality the interest rate offered by the Junior ISA provider will reflect their cost of providing you with the Junior ISA.
The Stocks and Shares Junior ISA will usually attract annual management charges and in some cases, an initial charge. There may also be dealing charges and stamp duty. You will need to check with the Junior ISA provider
From the age of 16, your child has the option to manage their own Cash Junior ISA and / or Stocks and Shares Junior ISA if they choose to do so.
Aged 18 or older, your child has the option to 'cash in' their Cash Junior ISA and / or Stocks and Shares Junior ISA or invest in an alternative financial product. They may wish to do nothing, in which case their Junior ISA will automatically convert to a regular ISA.
Currently this is not possible. If you agree with us and think this should, please add your voice and sign the Merge Child Trust Funds with Junior Isas e-petition please be quick as the e-petition closes on the 16th August 2012 and for the issue to be debated in the House of Commons it requires 100,000 signatures!