A Junior ISA or ‘JISA' as it’s known is a tax-efficient account that works in the same way as a regular ISA, but it’s specifically aimed at under-18s and has a lower annual allowance.
Parents or guardians can contribute up to £4,260 into a JISA in the 2018/19 tax year, compared to £20,000 in an adult ISA.
JISA's are held in the child’s name and are managed by parents or guardians until age 18, when management transfers to the kid and it rolls into an adult ISA with the bigger £20,000 annual allowance.
The biggest danger is that at age 18 the child can access the money and spend it however they want. This could mean that money put aside to pay for university fees or mortgage deposits could potentially be squandered on foreign holidays and fast cars.
But don’t let this put you off saving; as long as children understand the importance of their finances, they won’t go crazy with the cash when they turn 18. Younger generations face many challenges which weren’t encountered to anything like the same degree by their parents and grandparents. This includes excessive university fees and greater job insecurity, while the prospect of buying a house will seem like a distant dream for many younger people.
There are two type of JISA: Cash, and Stocks and Shares. Cash is usually considered lower risk because you are paid interest and, in the event of the savings institution going bust, your money should also be protected by the Financial Services Compensation Scheme (or equivalent scheme if held with an overseas bank).
However, while the value of investments can go down as well as up, over the long term the stock market is more likely to beat cash returns – particularly given the long investment period children have to weather any financial storm.
If you are interested in opening a Junior ISA, or want to know more about them, then MWS can help.
MWS Financial Advisers Limited are experienced and friendly. We have a knowledgeable team of advisers, who have a collective industry experience of over 100 years! So you can see the team that will be looking after you know their stuff! Contact Us Today for a free consultation!