ISAs have long been the savings account of choice for smart savers looking to earn tax-free interest on their capital. In November 2011 the government will launch Junior ISAs, a new form of saving account for children under the age of 18, allowing parents to put money aside for their children\u2019s future with one simple, easy to use financial product.<\/p>\n
The main difference between an ISA and any other form of savings account is that the interest accrued is exempt from tax and, whilst children\u2019s savings are protected from tax to an extent, Junior ISAs will now allow you to make completely tax free savings for your child.<\/p>\n
This is because Junior ISAs, unlike regular savings accounts, are not subject to \u2018the \u00a3100 rule\u2019, which states that any interest above a cap of \u00a3100 earned by a child\u2019s savings is considered part of the parent\u2019s earnings and taxed accordingly.<\/p>\n
Both Cash and Shares based options are available however, one of the biggest advantages of Junior ISAs is that, as children are entitled to one account of each type, you don\u2019t have to choose between them.<\/p>\n
This means that, if you are wanting the make the most of the opportunities for profit that the stock market offers, but are worried about tying your investment to the fortunes of the market, you can spread the risk by placing some of your funds in a cash ISA.<\/p>\n
Whilst the lack or risk attached to the cash option is attractive (there is no way that your investment can loose value unless inflation rises quicker than the interest rate offered by your ISA provider) it is worth remembering that, traditionally, the value of shares has risen quicker than the rate of inflation. If you do go with a shares option you\u2019ll find that, as the investment is so long term, some of the risk is taken out of the equation and that a poor performance one year can be redeemed over time.<\/p>\n
Finally, funds can be switched between the two accounts, allowing you a greater degree of control over your investment.<\/p>\n
Whilst the parents are charged with managing the account and can, for example, move funds from a child\u2019s Junior cash ISA to a shares based option, the extent of their control is limited.<\/p>\n
Firstly, once funds have been paid into the account they are \u2018locked in\u2019 and cannot be accessed again by anybody other than the child whose name the account is in, and even they can only withdraw money once they reach 18.<\/p>\n
Parents are also unable to control how or when their child will be able to access the money. On their 18th birthday the account will automatically become an ordinary ISA and control of it will be handed over to them. As a result they will have full and immediate access to all of the funds in the account.<\/p>\n
To a large extent Junior ISAs are being introduced as a replacement for Child Trust Funds<\/a>, a type of government sponsored savings account for children which stopped running in January 2011. As a result only those born later than the 3rd of January will be eligible for a Junior ISA and any child that already has a Child Trust Fund will not be allowed switch over to the new form of account.<\/p>\n Children born before the introduction of Child Trust Funds in September 2002 are the exception to this rule, which is great news as parents whose kids missed out on the CTF era will be now able to have a Junior ISA instead.<\/p>\n It is down to the parents rather than the government to set up a Junior ISA and, unlike the Child Trust Funds, the government will not help you to start up the account or contribute funds to it, the exception being looked-after children. (You can find about rules such as these in more details by reading the treasury\u2019s draft regulations.<\/a>)<\/p>\n Children are also able to set up Junior ISA accounts for themselves once they reach the age of 16.<\/p>\n Parents, Grandparents or anybody else with an interest in the child\u2019s future can pay up to a total of \u00a33,600 a year into the account (although it is worth checking here for the latest ISA allowances<\/a>), a significantly larger figure than the \u00a31,200 that could be paid into a Child Trust Fund. This means that, if you have funds available to invest, more of your child\u2019s nest-egg will be tax exempt than ever before.<\/p>\n Whilst the parents are charged with managing the account and can, for example, move funds from a child\u2019s Junior cash ISA to a shares based option, the extent of their control is limited.<\/p>\n Firstly, once funds have been paid into the account they are \u2018locked in\u2019 and cannot be accessed again by anybody other than the child whose name the account is in, and even they can only withdraw money once they reach 18.<\/p>\n Parents are also unable to control how or when their child will be able to access the money. On their 18th birthday the account will automatically become an ordinary ISA and control of it will be handed over to them. As a result they will have full and immediate access to all of the funds in the account.<\/p>\n Junior ISA will be available from November 2011 onward and will be provided by the vast majority of mainstream lenders, such as high-street banks and building societies.<\/p>\n Since the Child Trust Fund scheme ended (to new applicants) in January 2011 there has been little to replace it but in November 2011 a new Junior ISA is to be introduced by the government to provide tax free savings vehicles for children. Unlike a standard ISA you can have separate cash and share-based accounts and with a much larger limit on yearly investment that CTFs, Junior ISAs seem like a good deal.<\/p>\n","protected":false},"author":3,"featured_media":1806,"comment_status":"closed","ping_status":"closed","sticky":true,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4],"tags":[160,157,146,159,158,147],"class_list":["post-222","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-banking","tag-child-savings","tag-isa","tag-isas","tag-junior-isa","tag-junior-isas","tag-savings"],"acf":[],"yoast_head":"\nWho Can Set Up a Junior ISA?<\/h2>\n
How Much Can I Pay Into a Junior ISA?<\/h2>\n
Who Has Control Over the Account?<\/h2>\n
Where Will I be Able to Get a Junior ISA?<\/h2>\n
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