Happy Birthday Junior ISA

14th November 2015

New best buy tables launched 

It’s been four years since the launch of the Junior ISA (JISA), the tax-efficient children’s savings plan which replaced the Child Trust Fund. And with Christmas approaching, some parents and grandparents may be considering making a cash gift to their children or grandchildren.

There is an annual allowance which changes each tax year and currently stands at £4,080. This can be invested in any combination of equity funds, bond funds and cash and whilst the JISA needs to be set up by a parent or guardian, anyone can then contribute as long as the annual allowance is not breached.

According to HMRC figures 70% of all the funds that went into JISAs last year, went into cash.

The good news is that children’s savings accounts, including JISAs, pay some of the best rates available and whilst they might not be excited immediately, it is a gift your child or grandchild will thank you for in the future. Saving just £20 per month (earning 3% gross) could realise a lump sum of over £5,700 after 18 years. Increase that to £50pm and your child could have over £14,200.

The main advantage of the JISA over a regular child’s savings account is that parents can contribute into this account without falling foul of the tax rules that limit the interest on gifts from parents to less than £100 per year, (per parent). To clarify, if money given to a child by a parent outside a JISA, earns gross interest of more than £100 in any tax year, the parent is taxed on all the interest even though the child is likely to be a non taxpayer. At an interest rate of around 3% gross, a parent would fall foul of this rule on savings of about £3,300, and as the amount saved increases over time, it could have a significant impact.

The fact that the money cannot be accessed until the child reaches 18 could be viewed as an advantage or a disadvantage. The main concern is that at age 18 the child has unfettered access to the money and they can choose to do with it what they wish.

As with most children’s accounts, the rates on Junior ISAs have remained pretty stable since they were introduced, but as the rates on offer vary from provider to provider, it makes sense to shop around for the best JISA for your needs. And it’s also important to keep an eye on the rate going forward, as it may be prudent to transfer at some stage. 18 years is a long time to expect an account to remain the most competitive available. Whilst the majority of the rates have remained quite stable over the years, there are a few notable exceptions.

Furness Building Society, once offered a best buy rate of 3.05%. This has been cut repeatedly over the last couple of years and the rate now stands at just 2.10%, while Halifax dropped the rate on its Junior Cash ISA (linked to an adult ISA) from 6% to 4% earlier this year. Whilst this is a blow, it is still the best rate available so I guess we shouldn’t be too surprised that they dropped the rate. Skipton Building Society also once offered a competitive rate of 3.02%, but this was chopped to 2.65%, so better rates can now be found elsewhere.

More help with JISAs or any other savings accounts, check out our Best Buy tables, or why not call of our advisers on 0800 321 3581.

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