Almost half of parents are confused about Junior Isas (Jisas) nearly three years on from their introduction.
Some 49% wrongly believe all children are eligible for the tax-efficient savings accounts, according to research from SavvyWoman.co.uk, and 44% either think there's no limit on how much can be deposited into the accounts or aren't sure.
A Jisa, like the adult New Isa (Nisa), is a tax 'wrapper' that protects anything it holds from income and capital gains tax. They were introduced on 1 November 2011 and are available for children under 18 who are resident in the UK and who were not eligible for a Child Trust Fund (which was eligible to children born between 1 September 2002 and 2 January 2011).
A child can have one cash Jisa and one stocks and shares Jisa each year, into which parents, grandparents, other family members and friends can contribute. The allowance for the current tax year, 2014/15, is £4,000, and this can be invested in stocks and shares, deposited as cash savings or a mixture of the two.
However, SavvyWoman's research revealed that 11% of parents thought there were no limits. Of the 55% who correctly thought there was a limit, parents of children aged 14 to 15 were most likely to do so, while those with kids aged four to six were least likely.
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Sarah Pennells, founder of SavvyWoman.co.uk, said: "Our research shows that many parents are still baffled by or aren't sure about the rules. Junior Isas aren't the same as Child Trust Funds or adult Nisas, which may explain why parents haven't got to grips with them.
"Junior Isas aren't the only way to save or invest for a child, but it's vital that parents understand how they work so they can make an informed choice."
What you need to know about junior Isas:
- Junior Isas work in a similar way to adult New Isas in that interest on cash is paid tax-free and there's no tax to pay on stocks and shares Junior ISAs when cashed in.
- At the moment, Junior ISAs can be transferred between providers to get a better return, however unlike adult Nisas money cannot be withdrawn from Junior ISAs until the child is 18 and children can't take out a new one every year.
- They have to be opened by a parent or guardian on behalf of their child but once the child reaches 16 they can decide where their Junior Isa money is saved or invested.
- Money cannot be withdrawn before the child is 18 when the Junior Isa matures and it is theirs to manage. It's automatically rolled over into an adult Nisa unless the child withdraws the money.
- Children cannot have a Junior Isa if they already have a Child Trust Fund. While currently a Child Trust Fund can't be transferred into a Junior Isa, this is due to change in April 2015.
- Not all Junior Isas accept money transferred from previous years' accounts.