Junior ISAs

The Junior Individual Savings Account (ISA) is a new type of children savings account set to come into effect in November 2011. It will allow parents to save in a tax-free account until their child’s 18th birthday.

The Junior ISA will be available to under-18s from 1st November 2011 and parents will be able to contribute up to £3,000 every year. Youngsters can have one cash and one ’stocks and shares’ Junior ISA at any one time. Returns will be sheltered from all income and capital gains taxes.

However, simply because the account is tax-free doesn’t mean that you should open the first account you see. Interest rates and benefits will still differ from provider to provider and so it is vital that you compare Junior ISAs to find the best deal.

Funds cannot be withdrawn until the child’s 18th birthday. At this time the account will become a regular ISA with account holders free to withdraw the funds or continue to benefit from the account’s tax-free status.

Children under 18 who already have a Child Trust Fund (CTF) will not be eligible for a Junior ISA. So, Junior ISAs will be available to children, including under-18s, born before September 2002, when eligibility for the Child Trust Fund started, as well as those born since January 3, 2011, when CTF eligibility ended.

Existing Child Trust Funds, which also allow tax-sheltered returns, will initially run in parallel to Junior ISAs and will have their £1,200 annual investment limit increased to £3,000.

However, unlike the Child Trust Fund, the Junior ISA will not benefit from any Government contribution.  Previously, the Government committed an initial sum towards the Child Trust Fund to encourage families to save, but this will not be the case with the Junior ISA.

Junior ISAs will be sold by high street banks, building societies, investment companies and friendly societies already selling ISAs.  With a wide choice expected to be available, it is important that you shop around to compare Junior ISAs to find the best one for your needs.

The government expects 800,000 children a year to benefit from Junior ISAs, on top of those already eligible.

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