2020 was a topsy turvy year for all of us. And, for those of us who take an interest in our personal finance (which should be most of us with a pension or a variable rate mortgage!), the markets took a turn for the worse when the pandemic hit in early 2020. The stock market has since stabilised and it looks like things are getting back to ‘normal’, at least in the context of finance.
Is a Junior ISA the right savings approach for your child?
What is a Junior ISA?
A Junior ISA is a long term investment account opened on behalf of a child aged under the age of 18 by a parent or a guardian. The investment can’t be accessed until the child turns 18 (except under very special circumstances) but at the age of 16, the account can be managed by the child.
Types of Junior ISA
Like most ISAs, Junior ISAs come in two main flavours. A cash ISA is essentially very much like a high-interest savings account, with the caveat that the money cannot be withdrawn until the account owner reaches adulthood.
The second type of Junior ISA is a Stocks and Shares ISA. As the name suggests the money is invested in stocks and shares and like most investments based on the market, can go up as well as down. The most that can be saved in either or both of these Junior ISA’s is £9,000 for the tax year 20/21, tax-free.
Which type of Junior ISA is right for your child?
You should consult with a qualified and regulated independent financial adviser before you make any investment decisions. But let’s consider first how safe your child’s investment is. UK banks and building societies are regulated by the FSCS and protect an investment of up to £85,000. Interest rates, however, are at historical lows.
If a Junior ISA fund went into administration up to £50,000 would be protected by the FSCS. However, want you can’t do is try and claim for a lost investment due to the value of the fund going down.
What you should look for before opening a Junior ISA account for your child
All investment providers should give you details of their products known as ‘key facts’. These documents should detail, in-depth:
- Charges for opening the account and on-going.
- How the investment works. In the case of a Junior ISA, this should detail the nature of the funds invested in etc.
- The risks involved and whether you have recourse through the FSCS or the Financial Ombudsman scheme.
There is a myriad of different saving options available for your child. A Junior ISA, of either flavour, will give your child a lump sum of cash when they enter adulthood. And, with the cost of a university education costing north of £40,000 and house deposits being the key to homeownership, that can only be a good thing.
Is a Junior ISA the right savings approach for your child? is a feature post