Should your Junior ISA be in Cash or Stocks and Shares?
Children born after 3 January 2011 – or those aged under 18 and born before 1 September 2002 – can open a Junior ISA. This also applies for those children born between 1 September 2002 and 3 January 2011 who are not eligible for a Child Trust Fund (CTF).
Cash ISAs are a good savings option because you pay no tax on the interest or return. If you don’t want to take too much risk with your money, the top paying cash Junior ISAs pay up to 4% in interest; a much better interest rate currently than most Adult ISAs!
Stocks and Shares ISAs are classed as ‘tax-efficient’ because, although returns are free of UK Income and Capital Gains tax, there are other taxes payable on the investment such as taxes on dividend income which is 10% and cannot currently be reclaimed. While a parent or guardian must open the account, the money belongs to the child, but they can only withdraw the money after turning 18. You will need to pay annual management and platform charges. A number of providers offer DIY Junior ISA platforms.
There is a big fund, investment trust and shares universe that you can put into your DIY Stocks and Shares Junior ISA. Remember that you are investing for your child rather than yourself so your investment style and horizon may be different. When considering a platform for your Junior ISA you need to consider the same things as when picking an adult one. Think about both service and charges. Compare a couple of providers on administration fees, investment fund charges, fund and share dealing costs, regular investing charges and any other fees.
If you plan to regularly invest for your child make sure the cost of doing this is as low as possible. There are two main ways of doing this; either discounted regular monthly investment, which platforms often charge £1.50 for, or using a platform that offers free fund dealing, so do make sure that you check before pressing ahead with your budding young investor!
Do also note that, just like ‘adult investments’, Junior Stocks and Shares ISAs let you buy shares, bonds and other eligible investments. The value of these investments can go down as well as up.
The Junior ISA limit is £4,080 for the 2015-16 tax year. If the child is aged 16 or 17, they can take out an (adult) cash ISA and save up to £15,240 a year, as well as up to £4,080 in a Junior ISA.