Find out how Junior Isas work, plus our pick of the main providers.
A Junior Isa or ‘Jisa’ as it’s known is a tax-efficient account that works in the same way as a regular Isa, but it’s specifically aimed at under-18s and has a lower annual allowance.
Parents or guardians can contribute up to £4,260 into a Jisa in the 2018/19 tax year, compared to £20,000 in an adult Isa.
Jisas are held in the child’s name and are managed by parents or guardians until age 18, when management transfers to the kid and it rolls into an adult Isa with the bigger £20,000 annual allowance.
Patrick Connolly, a chartered financial planner at financial advisory firm Chase De Vere, says: “The biggest danger is that at age 18 the child can access the money and spend it however they want. This could mean that money put aside to pay for university fees or mortgage deposits could potentially be squandered on foreign holidays and fast cars.”
But don’t let this put you off saving; just ensure you teach children the importance of understanding their finances so they don’t go crazy with the cash when they turn 18. Mr Connolly says: “Younger generations face many challenges which weren’t encountered to anything like the same degree by their parents and grandparents. This includes excessive university fees and greater job insecurity, while the prospect of buying a house will seem like a distant dream for many younger people.
“This is why it is really important for parents to start saving as soon as possible. Parents and other family members are far more likely to be able to afford to put aside a modest monthly amount over 18 years then to try and access a much larger lump sum at the time the child needs it.”
There are two type of Jisa: Cash, and Stocks and Shares. Cash is usually considered lower risk because you are paid interest and, in the event of the savings institution going bust, your money should also be protected by the Financial Services Compensation Scheme (or equivalent scheme if held with an overseas bank).
However, while the value of investments can go down as well as up, over the long term the stock market is more likely to beat cash returns – particularly given the long investment period children have to weather any financial storm.
We outline how the major Stocks and Shares Jisa providers compare in the table below, while the best Cash Isas can be viewed here.
How Stocks and Shares Junior Isas compare
|Provider||Website||Minimum investment||Annual platform fee (i)||Buying and selling funds (per deal)||Number of funds you can invest in (ii)||Transfers alllowed?|
|AJ Bell||Youinvest||£25 a month (no minimum lump sum)||0.25% (maximum £5 a quarter)||£1.50||6,300||Yes|
|Alliance Trust Savings||Alliancetrustsavings.co.uk||£50 a month or £50 lump sum||£3.33 a month||£1.50||2,000||Yes|
|Bestinvest||Bestinvest.co.uk||£50 a month or £100 lump sum||0.40%||Free||"Most funds"||Yes|
|Charles Stanley Direct||Charles-stanley-direct.co.uk||£50 a month or £500 lump sum||0.25%||Free||2,200||Yes|
|Fidelity||Fidelity.co.uk||£50 a month or £1,000 lump sum||£2.08 a month for under £7,500 invested or 0.35% over £7,500||Free||2,500||No|
|Hargreaves Lansdown||Hl.co.uk||£25 a month or £100 lump sum||0.45%||Free||"Most funds"||Yes|
|Interactive Investor||ii.co.uk||£25 a month (no minimum lump sum)||£22.50 quarterly||£10 a trade||Over 3,700||Yes|
|The Share Centre||Share.com||£10 a month (no minimum lump sum)||£14.4 (£1.20 per month)||£7.50 for deals less than £750, otherwise 1%, 0.5% (min £1) for regular investing||Over 1,600||Yes|
|Vanguard||Vanguardinvestor.co.uk||£100 a month or £500 lump sum||0.15% capped at £375||Free||73||Yes|
(i) Individual funds will also come with their own ongoing charges (OCF). (ii) Information provided by Money.co.uk, July 2018. Source: All other information sourced by Moneywise directly from provider websites, July 2018.