Investing with a Junior ISA

A Junior ISA, or a junior individual savings account, is a tax-efficient wrapper that allows parents, grandparents and family friends to save into cash and/or invest on behalf of a child.

Junior ISAs must be opened by a parent or guardian but are held in the child’s name. The person opening the Junior ISA will be making all the decisions about where to invest until the child reaches 16, at which point the child can choose to become involved.

The money cannot be accessed by anyone until the child’s 18th birthday, at which point the Junior ISA becomes a standard ISA, the property of the child and fully accessible.

Learn more: Understanding ISA investment basics

Who is eligible?

A Junior ISA is available to any child who is a resident in the UK. If a child already has a Child Trust Fund (CTF), it can be transferred into a Junior ISA.

Child Trust Funds were the previous long-term tax-efficient accounts designed to help parents save. They have now been superseded by Junior ISAs and it is no longer possible to open a CTF, although if you already have one you can continue to contribute.

How much can you invest?

The current annual limit to invest into a Junior ISA is £4,368*. You can contribute an annual lump sum; regular, monthly savings; or ad hoc payments.

Contributions can either be made into a cash account or a stocks and shares account, where they would be invested into assets like funds, individual stocks and bonds. Because of the potential long-term nature of the Junior ISA (up to 18 years), investing could be an excellent way to significantly boost your returns, as the two examples below show:

  • £50 a month saved into a cash account with an interest rate of 2.5% over 18 years would give your child £13,650 on their 18th birthday¹
  • £50 a month invested with an average rate of return of 6% over 18 years would give your child £19,465 on their 18th birthday².

Note that the total annual limit is £4,368* across both cash and stocks and shares accounts (not £4,368* for each account).

Monthly savings examples

To get a better idea of the possible value of a portfolio with different monthly contributions, take a look at the chart below³.

How can you open a Junior ISA?

Cash Junior ISAs can be opened via most major banks or building societies. Be sure to shop around for a good rate and be aware of any temporary interest bonuses.

Stocks and shares Junior ISAs can be purchased through a funds supermarket platform, a broker, an advisor or direct from a fund provider. Some are also available at major banks.

You’re not locked in to your existing Junior ISA provider. For example, if you have a cash savings account and you find a provider with a better rate, you can move the money. You can also change the funds or other assets in which you are invested or change from cash to stocks and shares and back again.

You can invest in a Junior ISA online, by phone and by post. Charges and options may vary.

What should you invest in?

Choosing a Junior ISA cash account can be fairly simple. The main considerations are the interest rate paid and the length of time the interest rate is valid.

Choosing investments for your Junior ISA stocks and shares account can be tougher, but getting it right (or wrong!) can have a huge impact on the value of your investment.

FundCalibre is designed to help you research and choose investments to suit your needs, with Elite Funds in UK, European, US, Search Elite Rated Asian equity funds, Japanese, global and emerging market equities, as well as fixed interest and many other categories.

¹Source: The Calculator Site, £50/month for 18 years at 2.5% interest, calculated monthly
²Source: The Calculator Site, £50/month for 18 years at 6% interest, calculated monthly
³Source: The Calculator Site, all contributions and interest rates, calculated monthly

*Maximum allowance for the tax year 2019-2020. (For information on the 2020-2021 tax allowance view our Spring Budget 2020 update)

The views of the author and any people interviewed are their own and do not constitute financial advice. However the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Before you make any investment decision make sure you’re comfortable and fully understand the risks. If you invest in fund or trust make sure you know what specific risks they’re exposed to. Past performance is not a reliable guide to future returns. Remember all investments can fall in value as well as rise, so you could make a loss.