JUNIOR Isas are a replacement for Child Trust Funds. Parents and guardians will be able to open a Junior Isa from 1 November 2011, while anyone else is allowed to contribute to it.
Eligible children are those born before 1 September 2002 and after 2 January 2011. Tuesday’s launch will offer a tax-free way to save for your children. The Junior Isa will work in a similar way to the adult Isa: a child can have either a stocks and shares Isa, a cash Isa or a combination of the two. The limit will be set at £3,600 with the amount rising with inflation from April 2013, so investors can invest in one Junior Isa now for £3,600 and put the same amount in on 6 April 2012.
At 16 years old the child can take over maintaining the Isa and make investment decisions. When the child turns 18, the Junior Isa will automatically convert to an adult Isa and they will be able to withdraw the money or continue to invest.
It is important to make sure you pick the right provider when choosing where to invest in a Junior Isa, as you can only have one provider for all the allowances (but you will be able to switch providers). Before deciding, ask the provider if it offers access to a large number of funds, investment trusts, ETFs and shares? And if it rebates trail commission? Also, if it offers anything extra – but not gimmicks – such as cashback? A typical loyalty bonus of 0.25 per cent per annum could boost a family’s savings by over £3,100 over 18 years compared with parents opening a Junior Isa that doesn’t.
Choice is of paramount importance, when you consider a Junior Isa may be invested for 18 years or longer. Having wide choice will be essential for investors to adjust and change their portfolios to react to different market conditions.
Some providers may offer a “toy”, but over the longer term that will not help your child.