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Junior investment ISA: invest for children & grandchildren

Opening a Junior Investment ISA with Moneyfarm is a great way of giving your child a head start in life. If you’d like to find out more about this particular investment vehicle, please read on.

🤔 Who can open a Junior Investment ISA?A parent or legal guardian
✍️ What are the types of Junior ISA accounts?A Junior Cash ISA and a Junior Stocks and Shares ISA
🤑 What types of investments can I make in a Junior ISA?Cash, Stocks and shares, Investment trusts, Exchange-traded funds (ETFs), and Peer-to-peer lending
🔞 What happens to a Junior investment ISA when a child turns 18?The Junior investment ISA is converted to an Adult investment ISA

Junior Investment ISA vs Child Trust Fund

One of the options before the Children’s ISA was launched was a Child Trust Fund (CTF). There were three variants of CTFs, cash, stakeholder, and shares based. But CTFs were taken off the market in 2011 and replaced with the Junior Cash ISA and the Junior Shares ISA.

When comparing CTFs against Children’s ISAs, the main difference is what happens to the funds when the child reaches 18 years of age. With a CTF, the fund is encashed and given to the 18-year-old to do as he or she chooses. A Junior ISA, however, turns into an adult ISA on the child’s 18th birthday, giving the choice of whether to withdraw some or all of the funds or continue investing.

What is a junior investment ISA?

The initials ISA stand for Individual Savings Account. ISAs were originally introduced in April 1999 by the then Chancellor of the Exchequer, Gordon Brown. They were designed to replace Personal Equity Plans (PEPs) that had been previously introduced by Chancellor Nigel Lawson in 1987.

There are 5 ISA options – Cash, Innovative Finance, Junior, Lifetime, and Stocks and Shares. All of them are what are known as tax wrappers. They work in the same way as SIPPs (Self Invested Personal Pensions), but whereas the funds invested in a SIPP are locked in until the name-holder reaches 55, with an ISA, the name-holder has more access flexibility to the invested funds.

Having said that, with a Junior ISA, although the invested fund belongs to the child, the freedom to cash out the fund doesn’t arrive until the child turns 18.

As mentioned earlier, there are two types of Junior ISA – a Cash ISA and an Investment ISA (also known as a Junior Stocks and Shares ISA). What is a Cash ISA? A Cash ISA is not really an investment vehicle as much as a savings vehicle. Junior Cash ISA’s best rates are similar to those of bank savings accounts. Typically, the longer the withdrawal access period, the better the rate of interest.

The ISAs vs Savings Accounts debate is topical and is driven by individual preferences.

There are three different types of Cash Junior ISA – instant access, fixed rate, and regular savers. But as already mentioned, you can compare Junior Cash ISAs’interest rates with those of bank savings accounts – in other words, they are nothing to get excited about. Certainly not when you do a Junior Stocks and Shares ISA comparison.

Where a Cash Junior ISA does score, however, and what attracts some people to them is that it is considered to be safer than a Junior Stocks & Shares ISA.

It is possible for a child to have both a Cash Junior ISA and Junior Stocks ISA. You cannot, however, open both in the same year, but once opened, you can contribute to both within the Junior ISA annual overall allowance of £9,000.

How does a junior investment ISA work?

When you open a Junior Investment ISA, the money belongs to the child. The Junior ISA rules mandate is that only a parent or legal guardian can open a Junior ISA, but anyone can contribute once opened. ISAs for grandchildren are a great way for grandparents to save or invest money on the child’s behalf.

You don’t have to wait until the child turns 1. An appropriate adult (parent or guardian) can open a Junior Investment ISA as soon as the child is born.

Although the funds in a Junior Stocks and Shares ISA belong to the child, one of the Junior ISA rules states that the account should be managed by the parent or legal guardian until the child’s 16th birthday, when he or she can take over the account management. However, they cannot withdraw any funds until they reach 18 years of age.

In the meantime, funds deposited in the stocks and shares ISA are invested in the stock market. Any growth in value is free from Capital Gains Tax, and any ISA withdrawals are free of income tax. That’s the beauty of a Shares Junior ISA tax wrapper.

Benefits of Junior Investment ISA for parents and children

A Junior Investment ISA benefits the child, the parents or legal guardians, and any contributors, including grandparents.

From the child’s point of view, the benefits are tax-free growth and access to funds. From the contributor’s viewpoint, when you save money for a JISA (Junior Individual Savings Account), you take the opportunity to use up part of your adult ISA allowance. That allowance is £20,000 per annum, which can be invested in any one of the five types of ISA, although the maximum that can be put into a junior investment ISA in any tax year is £9,000.

Types of investments you can make in a Junior ISA

In terms of the types of investments you can make, a Junior Investment ISA works in exactly the same way as an Adult Investment ISA. You can invest in different types of investments, such as cash, stocks and shares, investment trusts, exchange-traded funds (ETFs), and peer-to-peer lending. Please check with your provider, as some do not offer all the types of investment options listed above.

However, one difference between adult and Junior investment ISAs is that a child can only have one, whereas an adult can have as many as they like.

Although a child can only have one Junior Investment ISA, they can also have one Junior Cash ISA. So, in terms of the types of investments you can make on behalf of your child, there is a reasonable choice.

If you are not overly concerned about risk, you can choose from several preformatted portfolios that offer different levels of risk. If you are totally risk averse, you can opt for a Cash ISA.

How to choose the best Junior Investment ISA for your child

Moneyfarm is one of the best Junior ISA providers, as the company was named the ‘Best Investment ISA – Medium Portfolio’ in the 25th annual Investment Awards 2023 and the ‘Digital Wealth Management Provider of the Year’ at the 2023 Moneyfacts Consumer Awards.

Regarding a Junior ISAs comparison, if you look at “Open your Stocks and Shares ISA today” page on the Moneyfarm website, you’ll see that the performance track record taken over four years is better than competitors on all seven portfolio options. It puts them at the top of the best Junior ISAs’ ratings.

If you have a Junior ISA with another provider and you want to switch to Moneyfarm, the “How to transfer your ISA” page on the Moneyfarm website will tell you everything you need to know.

But there is no escaping the fact that investing is riskier when compared to saving, and it’s a subject on which you may need to take financial advice to help you with how to choose the best ISA for your child.

Investment strategies for your Junior ISA Portfolio

If you want the best of both worlds – the security of a Cash Junior ISA and the increased return potential of a Junior Investment ISA – why not take it? There is nothing stopping you from opening both, provided you don’t do so in the same year.

As mentioned before, you will have to share the £9,000 per tax year investment allowance between them. Earlier, we mentioned the risk of investing, but if you open one of Moneyfarm’s top Junior ISAs, you can choose the level of risk you are prepared to take.

You should also bear in mind that if you open a Junior Investment ISA not long after the child is born, it will be a long-term investment, and investing long-term is one of the recommended ways of reducing risk. The other way is to diversify your investments, which is something else you will get with a Moneyfarm JISA as it is based on a range of investment options.

If you do open a Cash and a Junior Shares ISA and at a later stage you decide you want to amalgamate them, you can combine two ISAs together. It’s an option that’s always open to you.


What are the contribution limits for Junior ISAs?

The contribution limit for Junior ISAs for the tax year 2022-23 is £9,000.

Can I transfer my child’s Junior  ISA to a different provider?

Yes, you can transfer your child’s Junior ISA to a different provider at any time. This can be done without incurring any penalties or the Junior Investment ISA losing any tax benefits, as long as you follow the correct process.

Can I withdraw money from my child’s Junior ISA?

Usually, you cannot withdraw money from your child’s Junior ISA. The money in the Junior ISA belongs to the child and cannot be accessed by anyone until they reach the age of 18. However, if your child is terminally ill or has a life-threatening condition, you may be able to access the funds in your child’s Junior ISA.

You could lose the ISA tax benefits if you withdraw money from a Junior Investment ISA or Junior Cash ISA for any reason other than those allowed by HMRC.

*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.