Junior ISAs set to launch
Junior ISAs, or JISAs, are available from today - 1 November. But despite the grand unveiling, 74% of parents still don't know about them, according to the Association of Investment Companies (AIC).
Half a million babies born this year could miss out on having a JISA opened on their behalf as a result of this ignorance, Family Investments estimates.
Of those parents who are aware of JISAs, 32% say they are likely to open one, says the AIC.
JISAs are available to children born on or after 3 January 2011, any child the age of 18 born before September 2002, or anyone born between these dates who doesn't already have a child trust fund. Those with existing child trust funds aren't eligible for a JISA.
Children will be able to hold both a stocks and shares ISA and cash ISA; however unlike adult ISAs it's not possible to hold ISAs with multiple providers although, provided transfers are allowed, account holders can switch providers each year.
Children won't be able to access their savings until they reach 18. Alternatively, if they don't withdraw the money, the JISA will revert to a standard adult ISA.
Contribution levels will vary depending on individual providers' terms and conditions but junior cash ISAs have already been unveiled, available with just a £1 deposit (Nationwide and Skipton Building Society). Meanwhile, monthly contributions to stocks and shares ISAs can be as low as £10 (Family Investments and Fidelity).
Investing the maximum £3,600 into a stocks and shares ISA through an investment company would grow to £147,541 over 18 years, according to the AIC.
JPMorgan estimates average monthly contributions will fall short of the maximum level, but calculates that even with annual contributions of £1,117 (£93 a month), a JISA would be worth over £34,000 after 18 years, assuming a 5% yearly return.
The main high street banks have been surprisingly quiet. Nationwide and Skipton Building Society have unveiled plans of their JISAs. Both pay 3% AER and can be opened with a £1 deposit.
The Bank of Cyprus is offering both a fixed rate and variable rate cash ISA for 2.9% and 2.75% AER respectively. Existing customers can get even higher rates of 3.4% on fixed ISAs and 3% on variable.
Below is a list of all the providers offering stocks and shares JISAs so far:
AJ Bell - ajbell.co.uk
Chelsea Financial Services - chelseafs.co.uk
The Children's ISA - childrensisa.co.uk
The Children's Mutual - thechildrensmutual.co.uk
F&C - fandc.com
Family Investments - familyinvestments.co.uk
Fidelity - fidelity.co.uk
Foresters Friendly Society - forestersfriendlysociety.co.uk
Fundsmith - fundsmith.co.uk
Hargreaves Lansdown - hl.co.uk
JPMorgan - jpmorgan.com
Legal & General - legalandgeneral.com
Sheffield Mutual - sheffieldmutual.com
Shepherd's Friendly - shepherdsfriendly.co.uk
The Share Centre - share.com
Witan - witan.com
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.