Should you invest in a Junior ISA?
BY READERS DIGEST
1st Jan 2015 Managing your Money
Everyone wants to put away a bit of extra money for their kids, and thanks to the introduction of the Junior ISA in 2011, this is now a lot easier than before. Here we take a look at how the Junior ISA came to be, and whether the benefits are really worth the investment.
Before the Junior ISA
Once upon a time, if parents wanted to put aside a bit of money for their children, they had to place it into a normal savings account where it would be subjected to horrible tax rates. In order to fix this problem, the government introduced Child Trust Funds, although these have now been scrapped in favour of the more beneficial Junior ISA.
The ins and outs
Put simply, parents who take out a Junior ISA can put away a maximum amount of £4,080 for their son or daughter, and this money cannot be touched until the child's 18th birthday, at which point only the child has access to the funds. Those thinking about taking out a Junior ISA must choose between two different types of Junior ISA - the Cash Junior ISA and the Stocks and Shares Junior ISA. Below is an honest overview of both.
Cash Junior ISAs
These types of ISAs involve very little risk. A Cash Junior ISA can be opened with an investment as small as £1 while charges are minimal. The best Cash Junior ISA rate is offered by the good folk at Halifax, where customers can get a rate of 4%, but only if those customers also have an adult ISA. Elsewhere, Nationwide Building Society and Coventry Building Society offer 3.25% while 3.05% is available at Mansfield Building Society.
Stocks and Shares Junior ISAs
It will come as no surprise that Stocks and Shares ISAs present a great deal more risk than Cash Junior ISAs. The amount of money generated is dependent on the market, and the shares selected. There are also certain charges which must be paid, and special arrangements must be made for those wanting to pay into the ISA on a monthly basis.
Swapping from a CTF to a Junior ISA
In the four years following the closure of the Child Trust Fund scheme, there have been numerous calls for children with money in CTFs to be able to transfer these funds to a Junior ISA. These calls have recently been answered, and savings in CTFs can now benefit from better interest rates and reduced charges.
There is no doubt that investing in a Junior ISA is a very wise move, whether it is to get better rates on your child's existing CTF savings, or to start saving from scratch. Just think, a Nationwide CTF would have earned a child 1.1% in interest, whereas the Junior ISA offered by Nationwide today offers a much-improved rate of 3.25%. Parents must simply decide between the more reliable and less risky Cash ISA, and the cost-incurring yet potentially lucrative Stocks and Shares option.
