JISA – A junior’s account, with a great reward!
The JISA (Junior Individual Savings Account) has helped countless people to save money (tax-free might i add) on behalf of their children.
So why have junior ISA’s become SO popular? Here I take a look at the possible reasons why, and also tell you a little more about them!
How do they work?
Parents and guardians can save up to £4,080 a year tax-free for any child under 16. Once the child reaches that age they can take control of the account, but cannot access the money until they are 18.
Cash or stocks and shares?
As with ordinary Isas, Jisas are available as cash, or stocks and shares products. About 60 per cent of parents who took out a Jisa in 2015-16 chose cash products, according to government figures. Patrick Connolly, of Chase de Vere, the financial adviser, says: “People invest in cash because they understand it and because they are wary of taking risks, but if you’re looking long term — certainly over a period of ten years — then you are far more likely to get a better return by investing in stocks and shares.”
738,000 Junior Isas were opened last year
There is, of course, the risk of losses; the value of your children’s savings could go down as well as up. Yet, if you’ve been savvy enough to open a stocks and shares Jisa when your child is very young, the risk will almost certainly pay off and by the time they reach 18 they should have a healthy nest egg.
Should I switch my CTF to a Junior Isa?
You cannot hold a CTF and a Jisa but you can transfer the former into the latter.
“The problem with CTFs is that there wasn’t much competition when the scheme was launched [in 2005], so the products tended to be more expensive and have fewer investment options,” Mr Connolly says.
Danny Cox, of the financial service company Hargreaves Lansdown, says: “On the last official count there were 6.3 million CTFs, some of which have since been transferred to Junior Isas, and we would expect the number of people doing that to increase.”
Why a Junior Isa over other children’s savings accounts?
The main draws are simplicity, tax efficiency and competitive charges, but another key advantage is that because the child cannot access the money until they are 18, there is no risk of reckless spending. A Jisa will automatically convert into an adult Isa at this stage.
Mr Connolly says: “You wouldn’t consider a Junior Isa if you are putting in large amounts of money (ie, more than the allowance), or if you wanted complete control of the money even when the child is 18; then you might prefer to keep it in your name.”
Some people look at different trust options, but these are likely to involve paying for financial or legal advice. Others might consider a children’s pension, although that means the money won’t be accessible until later in life. The majority of parents open Jisas to give their children help in early adulthood, whether that’s with buying a first car or paying university fees.
Rachel Springall, of Moneyfacts, the analytics business, says: “If you compare Coventry Building Society’s Jisa rate of 3.25 per cent with HSBC’s child variable saver, offering 2.72 per cent gross, that’s quite a difference.”
It’s always a good idea to start some savings off for your kids, don’t you think? Happy saving!
– Bronny
bronwin@askbronny.com
