As parents and guardians of babies and young children, we aspire to help our little ones grow into caring, responsible, and financially stable adults, and saving for your child is an integral part of that process. Therefore, we address questions about when you should start saving and what savings vehicle you should use, including doing a Junior ISA comparison, here in this article to help you with solving the best ISA for child question.
| What’s the best ISA for my child? | Junior ISA or JISA |
| Who can open an ISA for a baby? | The parent or legal guardian |
| How much can you put in baby ISA? | £9,000 for the 2022-23 tax year |
| Can a baby have an ISA account? | Definitely, babies can have an ISA account |
| Which is safer, children Cash ISA or Childrends Stocks and Shares ISA | Cash ISAs for children have fewer risks |
Can Babies have ISAs?
One of the best savings vehicles available here in the UK right now is the Individual Savings Account or ISA for short. There are four basic types of ISA – a Cash ISA, a Stocks and Shares or Investment ISA, an Innovative Finance ISA, and a Lifetime ISA. But the Cash ISAs and Stocks and Shares ISAs also have variants for children by way of a Stocks and Shares Junior ISA and a Cash Junior ISA, so one of the things we are going to do to help you find the best baby ISA, is to carry out a Junior ISA comparison.
The good news is that you can open both types of Junior ISA (JISA), cash or stocks and shares, for children up to the age of 16. So you can start as early as you like once you decide on the best ISA for a newborn baby. Whichever you decide on, once the child reaches 16 and 17 years of age, they can open one for themselves.
Registering an ISA for newborn babies is perfect because starting one just after the baby is born is by far the best option as the longer the investment runs, the better. That will, of course, lead us to the question of which is the best ISA for a baby? But let’s not get ahead of ourselves. Before we do our Junior ISA comparison, let’s start with who can open an ISA for a baby or child.
Who Can Open a Junior ISA for Babies
Not just anyone can open a Junior ISA for a child or baby. You must either be one of the child’s parents or legal guardians. Not even grandparents can open a Junior ISA. Although, like anyone, they can contribute to the children’s ISAs once they have been opened.
You want to put as much aside for your child as possible, but financial planning is essential. You must first make sure you are in a position to do so.
For Junior ISA contributions, the maximum annual Junior ISA allowance is £9,000. To avoid any doubt, this is the total amount that can be contributed across all types of JISA during a tax year, whether it’s just one person or several who donate. But what is the best ISA for a baby? Which should you choose – Cash or Stocks and Shares? Before we begin our Junior ISA comparison, let’s look at what Junior ISA accounts are.
The Junior ISA Explained
In response to the question of what is the best children’s ISA, there is only one – the Junior ISA, or JISA for short.
Junior ISAs are long-term savings accounts set up via Junior ISA providers by parents or guardians for their children’s future. But the potential problem you will encounter is that there are two types.
Both Junior Cash ISAs and Junior Stocks and Shares ISAs, like all forms of ISAs, are known as tax wrappers. It means that when the child in question reaches the age of 18, the age at which they can withdraw their funds, they won’t be liable for either income or capital gains tax.
To qualify for a Junior ISA, which many people believe to be the best child savings account available, a child must be under 18 years old, a resident of the UK, or be the child of a Crown employee serving overseas.
When considering the best childrens ISA accounts for babies, children’s ISA rates matter, and a Stocks and Shares JISA offers potentially more significant returns in the long term. However, you have to bear in mind that the value of investments can depreciate as well as appreciate. On the other hand, one of the key points in a Junior ISA comparison is that cash is more secure but earns lower returns, and its value can erode due to inflation. The rate of return is a dilemma when considering the best children’s ISA savings accounts.
A Junior ISA comparison to decide which is better – A Junior ISA or a Child Trust Fund?
The Child Trust Fund (CTF) scheme was closed to new applicants in 2011. The Junior ISA scheme replaced it. If you still have an active CTF started before that date, you can continue making payments of £9,000 per annum into it. As with JISAs, when the child reaches 16, they can take over the management of the fund and withdraw money when they reach their 18th birthday.
On the downside, the £50 – £500 the government contributed to each CTF also ceased with the scheme’s closure, and it does not apply to Junior ISAs.
On the upside, whereas a child could only have one type of CFT (Cash or Stocks and Shares), not both, a child can have both types of Junior ISA (hence the need for a Junior ISA comparison) but no more than one of each. The other advantage is that Junior ISAs tend to offer more choices and better value than CTFs.
If your little one already has a Child Trust Fund (CTF), you can only open a JISA if you transfer the money in the CTF into a Junior ISA as part of the JISA application process.
The Child Trust Fund vs Junior ISA comparison is a close one. But if you want to switch your child’s savings account across, you can do so.
The Best Junior ISA for Babies in the UK
If you want to know the answers to “What’s the best ISA for my child?” or “What is the best ISA for a baby?” one of the key points in any Junior ISA comparison is your attitude towards risk. While cash savings are potentially safer than savings in the stock market, the maximum amount of interest a Junior or Adult Cash ISA can earn is likely to earn is around 5%, whereas Junior or Adult ISAs invested in stocks and shares are expected to earn significantly more.
A Cash ISA vs Stocks and Shares ISA study conducted by Moneyfarm a little while ago concluded that the annual return on bank accounts and Cash ISAs was 1.21% as opposed to 9.64% on Stocks and Shares ISAs. Bearing this in mind, the best ISA account for a baby has to be a Stocks and Shares JISA.
While children’s ISA rates for a cash ISA and stocks and shares ISA differ, when carrying out a Junior ISA comparison, bear in mind that both types of Junior ISAs are tax-free savings accounts, and both allow the child or young person to access the money when they turn 18.
If you are trying to figure out best childrens ISA for your baby, remember you can open both types, but only one in the same tax year. But watch out for changes from April 6, 2024, as you will then be able to open more than one of the same type as long as you stay within £9,000 per annum overall limit.
For UK parents and guardians, deciding on the best child ISA for their baby soon after birth often leads to choosing a Cash ISA, and that is because children’s Cash ISAs are safer.
But often, after a few years, when doing a Junior ISA comparison and you see interest rates soaring and outstripping the potential returns, you might decide to take out a Junior Stocks and Shares ISA. That way, the child has both types, so when it comes to choosing the best Junior ISA you’re covered both ways. Alternatively, you might decide on an ISA transfer, closing the Cash ISA down and moving the funds into an Investment ISA.
There is no doubt that one of the best kids investment vehicles around is the Junior ISA. When carrying out a Junior ISA comparison, you just have to assess your attitude towards risk when trying to determine the best child ISA – a safer Cash JISA or a more risky, but potentially more rewarding, stocks and shares JISA.
FAQ
Which is the best ISA for children?
A Junior ISA is recommended as the best ISA for children. It is designed for children and is tax-efficient to save for your child’s future. A Junior stocks and shares ISA account is ideal as you can earn higher interest than a Junior cash ISA. However, Junior stocks and shares ISAs are riskier. The responsibility of making the final decision after an ISA comparison falls to the parent. However, a child can have both types of Junior ISA.
Can I open an ISA account for a baby?
Yes, you definitely can. However, you have to be the parent or legal guardian to open an ISA account for a baby, and the child has to be under 18 and a UK citizen.
Can I open a Child Trust fund and a Junior ISA for a baby?
No, you cannot have a Child Trust Fund and a Junior ISA simultaneously. If you want to open a Junior ISA account for a baby with a Child Trust Fund, the investments in the Child Trust Funds must be transferred to the Junior ISA.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
