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The pros and cons of junior ISAs

Turning 18 is possibly one of the most exciting times in your life. Suddenly, you're hurtling towards adulthood and you're about to experience a lot of change.

There are many different ways to save for your child's future and it can be hard to tell which option is right for you and your family.

We've pulled together a list of the benefits of junior ISAs (JISAs) and the things to keep in mind, so you know what to expect if you do choose a JISA.

What is a Junior ISA?

Junior ISAs are long-term, tax-free savings accounts for children. They can be opened for any child under 18 years old (under 16 years old for a OneFamily Junior ISA) who doesn't have a Child Trust Fund, but only by the child's parents or legal guardians. If a child does have a Child Trust Fund, it can be transferred into a JISA.

You can put up to £9,000 a year into a JISA and anyone can pay into it. As the junior ISA is in the child's name, only they can access the money and only when they turn 18. At this point, they'll be able to decide what they want to do with the money.

What are the pros of junior ISAs?

There are many good reasons to open a junior ISA and start saving for your child's future. Making this decision early could give your child a boost at the start of adulthood by helping them to pay for higher education, driving lessons or even to take their first step on the housing ladder. Here are some of the main advantages of opening a junior ISA.

Junior ISAs are tax-efficient

When your child turns 18 and is able to take the money out of their junior ISA, they won’t pay tax on any interest or returns.

There’s more than one type of Junior ISA

There are two types of Junior ISAs: stocks and shares JISAs, and cash JISAs.

Stocks and shares JISAs invest your money in the stock market. They have good potential to grow over the long term. In fact, in every 18-year period over the last 50 years, stocks and shares have grown more than cash accounts. However, even though they've performed well in the past, there's still a chance your child might get back less money than has been put in.

With cash junior ISAs your money is protected, since it isn't invested in the stock market. It will grow by earning interest like current accounts do.

OneFamily only offers stocks and shares Junior ISAs.

Money in a junior ISA is locked in

The money you invest in a junior ISA is locked in, meaning it can't be accessed by anyone other than your child, and only when they turn 18. This means that you and your child can't be tempted to dip in early and the money will still be there when they reach 18.

JISAs are a good way to educate children about finances and savings

What better way to start teaching your children about money than by telling them they already have some money in their name?

You’ll have the perfect conversation starter to teach them about the importance of money management, long-term savings and how financial products work.

This will put them in a good position when they take control of their JISA so they can work out how to stretch that lump sum and make it work towards their long-term goals.

Anyone can put money into a junior ISA

Although you can only open a junior ISA for your own child, anyone can pay into them – they don’t even have to be family! This makes it the perfect way for relatives or family friends to contribute to your child’s future, especially as a present on special occasions such as birthdays, graduations or Christmas.

A JISA can help reduce inheritance tax

A JISA can be a good way to reduce how much tax your child pays on their inheritance after you die. They won't pay any tax on the money their JISA makes, so if you’re putting money aside to leave to your child when you’re no longer around, you could put some of it – up to £9,000 a year, based on the current annual ISA allowance – into a junior ISA.

Things to consider

Like all savings accounts, there's a few things to keep in mind if you're thinking about opening a junior ISA.

Your money is locked in

As we've mentioned, the money you put into a junior ISA is locked-in until your child turns 18. While this removes temptation, it could be seen as a problem if you or your child need the money before their 18th birthday or if you decide you'd rather use it for something else.

Inflation can affect the value of money in a cash junior ISA

Interest rates on cash ISAs are relatively low and inflation rates are rising, so it is likely that money held in a cash ISA could be worth less in the future than it is today.

Cash JISAs don't invest in stocks and shares, which means your child's money is protected from drops in the stock market. However, if the cost of living goes up more than interest rates, then the money in the JISA will be able to buy less in the future than it can today.

Stocks and shares junior ISAs can fall in value

The money invested in a stocks and shares junior ISA is affected by changes in the stock market. This means the value of your investments could go down as well as up, so your child may get back less than has been put in.

Weighing up your options

So, is it a good idea to open a junior ISA for your child?

Well, you'll be growing a nest egg that only they can access and only when they turn 18. JISAs are tax-free, and anyone can pay into an account, so friends and relatives can contribute to your child's future. It's also a good way to start teaching your child about money and long-term saving.

But, like other most savings accounts, there are a few things to consider. Money saved in a cash JISA can lose its value over time and money invested in a stocks and shares JISA is affected by changes in the stock market.

OneFamily's Stocks & Shares Junior ISA

Our Junior ISA invests in stock and shares and gives you a choice of two different investment funds. One fund focuses on UK-based climate-friendly and ethical investments and the other invests in a balanced mix of international assets.

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