In case you hadn't noticed, the ISA season is upon us. Banks, building societies and fund managers are tweaking their cash and equity Individual Savings Account deals before the tax year ends in April. Now they’re after children - in a good way, of course.
Junior ISAs (known by the ugly term JISAs) were launched last November, replacing the now defunct Child Trust Fund scheme. For kids born before September 2002, or after 2nd January 2011, JISAs allow £3,600 to be paid in each tax year - without falling foul of tax rules that limit the interest on gifts from parents to less than £100 per year. It’s not just parents who can contribute; grandparents, friends etc. can also help fund your child’s future if they want to.
Money must be held in the JISA account until a child is 18 and then the money is theirs (not mum’s or dad’s!). All interest is tax free of course.
So what cash JISAs are on offer? Well here’s a rundown of some of the best.
Of course it is a chance for providers to pull out the marketing stops and there is no better example than the Halifax, offering a potential 6% tax free – meaning real returns. But in order to earn that staggering rate you need to also have an adult cash ISA with Halifax, so you won’t be able to earn a market leading rate on your money, unless you're prepared to tie it up for 5 years. In other words, the kids are quids-in but the bank of mum and dad is not.
So this deal only appeals to parents willing to sacrifice their own interest (that sounds like a parental job description to me). If mum and dad only have a small amount saved in a Halifax cash ISA, but plan to boost their kids’ savings each year, the deal might make sense.
But if you’re not willing to sacrifice everything for your children, the best no strings deals are hovering around 3% - and that includes the underlying Halifax cash JISA. You’ll need to check the details, because these may not be straightforward offers.
The Nationwide Smart Junior ISA pays 3% but this rate includes a bonus rate of 0.9% that applies until the end of October 2013. If you go down this route, make a diary note or simply sign up for our free Rate Tracker service and we’ll remind you and recommend if better deals are available.
If you live near a branch of Skipton Building Society (mainly in the North West, Yorkshire and Humberside), its simple no-bonus 3.02% deal from £1 has stolen the top spot. Mind you, if you live in Anglia or Wales, getting to your nearest branch might cost way more than your kids will earn in interest.
Lloyds TSB has launched a JISA paying 3% from £1 up - no bonus, no faff, just simple. Like the Skipton, you'll need to visit a branch but hopefully there'll be one close by, wherever you are.
Our best bet? Keep it simple – consider opting for the best rate with no bonus attached. But remember to always keep an eye on the rate in the future (via Rate Tracker of course) as you can transfer to a better deal, if these fade over time.