Junior ISAs explained

What is a junior stocks and shares ISA?

Contributions to a junior stocks and shares ISA are invested, usually in the stock market. Growth is dependent upon the performance of the shares, assets or sectors invested in. This can potentially result in a higher return than is possible with a Junior Cash ISA.

There are two key ways in which you can invest in a junior stocks and shares ISA. These are:

• A managed fund – Your money is invested in funds that are managed on your behalf. This can be a good choice if you have little or no experience of investing. It could also be a good option if you’re happy to leave the money in the hands of professional experts. WUTM’s Unit Trust Junior ISA is an example of a JISA invested in managed funds.
  
• A self-select fund – You choose the investments yourself. This might be individual shares, government or corporate bonds, a combination of the two, or exchange traded funds (ETFs) tracking a specific market or index. This type of fund is generally aimed at those who have a bit more investment experience or good knowledge of how the markets work.

Whichever type of junior stocks and shares ISA you choose, there’ll be charges. You might have to pay a fee for the initial setup of your child’s account. Even if there’s no initial payment, there will usually be a management fee, which can be taken from the fund or paid separately. This might be a percentage of the fund’s value or a fixed fee, and can be payable monthly, quarterly, or annually.

Bear in mind all investments can go down as well as up, and you may get back less than you put in.

What is a Junior Cash ISA?

A Junior Cash ISA is similar in principle to a standard tax-free savings account. When you open one for your child, you can usually choose between a fixed or variable rate of interest.

• Fixed rate – The percentage of interest remains fixed throughout the lifetime of the account. This has the benefit of performing better when interest rates are low. If interest rates rise above the fixed rate though, the account misses out on that rise.
• Variable rate – A variable rate of interest will usually change in line with the Bank of England’s base rate. This means your child’s savings pot will grow more during times of high interest, and less so when it is cut.

While the value of the Junior Cash ISA will never fall below the amount deposited, this doesn't take into account the loss of value in real terms, due to inflation. Like any cash savings product, the interest may fail to keep pace with inflation.

The key differences between a JISA and a normal ISA

• The JISA allowance is £9,000 for the 2023/24 tax year, compared to £20,000 for an adult ISA*
• Any money paid into a Junior ISA is inaccessible until your child reaches the age of 18
• Anyone can pay into a JISA, whereas in most cases only the account holder can contribute to an adult ISA.

Although the money remains locked away until adulthood, your child will take control of the account at 16. Once they reach 18, the Junior ISA will become the standard equivalent of the type of ISA they had. Whether a stocks and shares or a cash ISA, your child has sole access and the freedom to do with the funds as they wish.

*This allowance isn’t transferable from one tax year to the next. If you don’t reach the £9,000 limit in one year, the difference is not carried over to the next.

Junior ISA vs Child Trust Fund

You can only open a new Junior ISA for a child born after January 3rd, 2011. This is because anybody under the age of 18 born before that date will have automatically qualified for the government’s now defunct Child Trust Fund (CTF).

Like a Junior ISA, the CTF scheme provided tax-free savings for children. It is not possible for the same child to hold both a Child Trust Fund and a Junior ISA, although you can convert the former into the latter if you so wish.

Once the funds from the Child Trust Fund have been moved into the Junior ISA, the CTF will close. If the CTF was invested, there may be fees payable for transferring out.

Can a grandparent open a Junior ISA?

Although a grandparent, or any other adult, can freely contribute to a child’s Junior ISA, they cannot open one. Only a person with parental authority or a legal guardian can open a JISA.

Simply contributing to a Junior ISA doesn't impart any ownership upon the account. You won't receive a statement, confirmation of payments, contract notes or any other documents. These are reserved solely for the account's legal owner, who, until the child reaches the age of 16, is the person that opened it.

How many Junior ISAs can a child have?

Your child can have a maximum of two JISAs. A cash JISA and a stocks and shares JISA. They can’t have two of the same type.

The yearly allowance of £9,000 would be split across both. So, for example, over the course of a single tax year, you could contribute £3,000 into one and £6,000 into the other. Any more would exceed the limit, with any additional returns losing their tax-free status.

The Unit Trust Junior ISA

Wesleyan Unit Trust Managers (WUTM) offers the Unit Trust Junior ISA, allowing you to start saving for your child’s future. A stocks and shares ISA, you can choose from six managed funds, depending on the risk factor that suits you. The funds are maintained on your behalf by our award-winning team of investment experts – and you can switch funds at any time.

What is a unit trust?

Maintained by a fund manager, a unit trust is a type of collective investment set up under a trust deed. Your money is pooled into a single fund with that of other investors. This buys a range of assets, the overall value of which is divided into units. These units are what your investment buys. Depending on how the underlying assets perform, the value can go up or down.

Find out more about the Unit Trust Junior ISA .

Bear in mind all investments can go down as well as up, and you may get back less than you put in.