Junior ISA limit expected to be £3000
Details of the Junior ISA are set to be laid out today with the annual limit expected to be £3,000.
The ISAs will become available from 1 November. The allowance can be invested in stocks and shares or deposited in cash but the child will not be able to access the money invested until they reach 18.
Experts are predicting that if a parent invests the full allowance of £3,000 each year they could accumulate savings of £107,923.08 (based on 5% growth per year and assuming the allowance rises each year by an inflation rate of 2%).
Junior ISAs were introduced as a replacement for Child Trust Funds, which are no longer available.
Those Child Trust Funds currently being used will see their limit rise from £1,200 to £3,000 to prevent parents from losing out.
But Junior ISAs will not receive any government contribution, unlike Child Trust Funds.
Tom Stevenson, investment director at Fidelity International, says: "Young people often have the greatest opportunity to benefit from the long-term performance of stockmarkets and the Junior ISA will allow them to do so in a tax-efficient way, while also learning about the benefits of saving.
"The Junior ISA is not a replacement for creating a sensible joined-up system of adult saving - that is to say one where people can move their money more freely from short-term ISA savings to longer-term pension pots - but, along with steps like the abolishment of compulsory annuitisation of pensions, it is an important move in the right direction."
Available from 1 November 2011, the Junior ISA will replace child trust funds (CFTs), which have been phased out. Junior ISAs will have a £3,000 limit and will be offered by high street banks, building societies and other providers that currently offer ISAs to adults. You can invest in either stocks and shares or cash. But, unlike CTFs, there will be no government contributions into each child’s savings pot. Money invested in Junior ISAs will be “locked in” until the child is 18, and the ISA will default to an adult one.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).