What is a junior investment Isa?
A junior investment Isa can be used to buy and hold shares, funds and other types of investment, without incurring tax
Parents and guardians can set up a junior Isa (Jisa) for their kids, provided they're under the age of 18 and live in the UK. You can then invest up to £9,000 each financial year and any growth of the money you put in - whether that's interest or investment returns - will be tax-free.
Even if you invested the full £9,000, you'd still have the rest of your own £20,000 annual Isa allowance to invest in that financial year in a stocks and shares Isa, cash Isa, lifetime Isas, or innovative finance Isa.
Once you put money in a Junior Isa, it officially belongs to your child and can't be accessed by anyone else. When your child turns 16, they can manage their own account online but they can't access the money until they turn 18 - at which point the junior Isa rolls automatically into an adult Isa.
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Why should you get a junior investment Isa?
Investing in a junior investment Isa has three main advantages:
- Returns are tax-free
- The money can only be accessed by your child, and not until they're 18
- Investing could get your child a higher return than cash Isas or savings accounts
The disadvantage is that some or all of the money you're saving for your child could be lost, if investments don't perform well.
You'll also have to pay a small fee to the junior investment Isa provider.
Junior investment Isas vs junior cash Isas
While a cash Isa and investment Isa will offer you the same tax-free benefits, there can be a big difference in the returns you get back.
The best junior cash Isa available in early 2023 paid 4% which then lagged behind inflation, so your money would lose value in real terms.
Investing in a junior investment Isa, on the other hand, gives you a chance to not only match inflation but even outpace it.
If you invest the money you put aside, you have more control over what the money does For example, you might want to invest in projects aiming to have a positive impact in the world your child will grow up in – which you could do through investing in impact funds.
Though a child can have both types of junior Isa, you can only open and pay into one type of junior Isa per year.
Junior investment Isas vs Premium Bonds
The popular choice of premium bonds as a gift for a child - while also tax-free - struggle to match the returns of both cash and investment junior Isas.
If you invested £500 in the premium bonds for your child when they're born, in most cases they'd win nothing in most years they're invested - just an odd £25 here and there.
Whereas if you put £500 into a junior investment Isa for a newborn, you could end up leaving them nearly double what you put in - more than £970 by the time they can access it, assuming 4% growth of their investments each year.
- Find out more:Ways to save for your children
Is a junior investment Isa risky?
All investing involves the risk of losing money, though you can manage these risks.
When you open a junior Isa you'll be asked to pick the investments that go inside it. Some investments, such as company shares, are more volatile than others, such as bonds.
We've got plenty of guides to help you pick investments, and a financial adviser can also help.
Some providers, such as Moneyfarm, Nutmeg and Wealthify, will pick investment for you based on a questionnaire you fill out.
Given that your money could stay invested for eighteen years if you set an junior Isa up soon after your child is born, you'll be able to hold out through dips in value of your investments and have a better chance at turning a generous profit.
Ultimately, you need to be comfortable with the very real possibility that you'd get no profit at all or even lose the money you invested in the first place. If that doesn't sit right with you, you might be better off with a junior cash Isa.
- Find out more:How to invest: a beginner's guide
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Can you open a junior Isa for your grandchild?
If you're a grandparent, you can't open a junior Isa for your grandchildren - unless you are the child's legal guardian - but you can make contributions up to the £9,000 annual limit each year.
The £9,000 limit applies to the total payments made by all people depositing money into the junior Isa, so check with the child's parents how much has been put in already this financial year so your money doesn't bounce back to you.
The limit is for an individual child so if you have several grandchildren, you would be able to contribute up to this amount for each grandchild each year.
Only the parent or guardian who invested (or the child themselves when they turn 16) can control the investments in the account, so grandparents can't decide where their money goes.
If you're interested in helping children and grandchildren, read our guide to Inheritance tax planning and tax-free gifts .
Where can I find the best junior investment Isa?
You can open a junior investment Isa with an investment platform - a company that allows you to buy investments.
Here we've listed investment platforms that offer junior Isas, how much they charge and the minimum investment.
Click on the links to read our reviews of the difference platforms, based on feedback from customers, or see our guide to Best investment platforms 2023 .
| Provider | Annual cost | Minimum investment |
|---|---|---|
| AJ Bell | 0.25% of the value of your investments | £500 lump sum or £25 per month |
| Bestinvest | 0.20% of the value of your investments | £100 |
| Charles Stanley Direct | 0.35% on investments under £250,000 | £500 lump sum |
| Fidelity | Free | £500 lump sum or £25 per month |
| Hargreaves Lansdown | Free | £100 lump sum or £25 per month |
| Interactive Investor | Free with an adult account | £100 lump sum or £25 per month |
| Moneybox | 0.45% plus £1 monthly fee | £1 |
Source: Unbiased
- Find out more:Best investment platforms 2024
Can you transfer junior Isas?
You can also transfer between junior Isa providers, as long as the new provider accepts transfers.
To do this, you’ll need to transfer all your junior Isa investments from previous years.
Don't just shut down the account and move the money yourself, as you'll lose all the tax-free benefits of the savings you've made.
You can find out more aboutinvestment Isa transfers here.
As an expert in financial planning and investment strategies, I can confidently delve into the intricacies of the topic at hand – the Junior Investment Isa. With a comprehensive understanding of investment vehicles and tax implications, I aim to shed light on the key concepts discussed in the provided article.
The Junior Investment Isa is a powerful tool for parents and guardians in the UK to invest on behalf of their children. It allows for the purchase and holding of shares, funds, and various other investments without incurring tax, making it a tax-efficient option for long-term wealth accumulation.
One significant aspect of the Junior Isa is the annual contribution limit, which stands at £9,000. This limit enables parents to invest a substantial amount each financial year, with the added benefit that any growth – be it from interest or investment returns – remains tax-free. Importantly, this does not affect the parents' own annual Isa allowance, providing additional flexibility for diversified investment strategies.
The ownership structure of the Junior Isa is noteworthy. Once money is deposited, it becomes the property of the child, inaccessible to anyone else. At the age of 16, the child gains control over the account, although they can only access the funds at 18, at which point the Junior Isa automatically converts into an adult Isa.
The advantages of opting for a Junior Investment Isa are evident. Firstly, the returns are tax-free, providing a significant advantage over traditional savings accounts. The restricted access to the funds until the child turns 18 ensures a disciplined and long-term approach to wealth building. Moreover, investing has the potential to generate higher returns compared to cash Isas or savings accounts, although it comes with the inherent risk of market fluctuations.
Comparing Junior Investment Isas with their cash counterparts, the article emphasizes the potential for higher returns through investments, even surpassing inflation. This is in contrast to cash Isas, which may struggle to maintain real value over time.
The article further explores the risk associated with Junior Investment Isas, acknowledging the possibility of losing money, particularly in volatile investments like stocks. It highlights the importance of careful investment selection and the option to seek advice from financial advisers or utilize automated platforms for investment choices.
The discussion extends to the role of grandparents in contributing to Junior Isas. While they cannot open an account, they can contribute up to the annual limit of £9,000, offering a valuable opportunity for intergenerational wealth transfer.
Finally, the article provides insights into choosing an investment platform for Junior Isas, listing various providers, their annual costs, and minimum investment requirements. Additionally, it emphasizes the option to transfer Junior Isas between providers, stressing the importance of ensuring a seamless transition to retain tax-free benefits.
In summary, the Junior Investment Isa serves as a powerful tool for tax-efficient wealth accumulation for children in the UK. Its advantages include tax-free returns, restricted access to funds until adulthood, and the potential for higher returns compared to traditional savings accounts. However, the associated risks, the role of grandparents in contributions, and the selection of investment platforms are crucial considerations for effective implementation.
