A junior ISA is a long-term and tax-free way for parents or guardians to invest or save money for their child's future.

The money you add into this savings account is locked away. Your child can take control of the account and manage it from age 16, but cannot access it or withdraw funds until their 18^th birthday.

Currently, every child has a junior ISA allowance of £9,000 per tax year which can be used during the tax year. This is the maximum amount that can be put into their ISA across the tax year and this allowance is reviewed annually by the government.

You don’t have to put the full amount in – the £9,000 is just a maximum. A child can only have one junior cash ISA and one junior investment ISA at any one time.

The best junior ISA for you will depend on a variety of factors, including: 

• How much you have to invest – most junior ISAs can be opened with just £1, although this is worth checking as some providers ask for more

• Your attitude to risk – generally speaking, if you’re very risk averse, you’ll probably be more comfortable with a cash junior ISA for your child. However, stocks and shares junior ISAs should beat cash accounts over time

• Your ethical stance – if you are concerned about the environment, for example, you may want to use your junior ISA to invest in sustainable assets, such as an ESG (environmental, social, and governance) focused investment fund

The headline advantage of a junior ISA is that interest or investment returns are tax free. However, most children will not pay tax on their income anyway, so you’re better off going with the best rates you can find. For savings, this is often via a children’s savings account rather than a junior ISA account.

There are some exceptions to this:

If your child already earns an income

If your child is earning an income, then they have a personal savings allowance that lets them earn up to £1,000 a year in interest without paying tax. But if they’re a higher-rate or additional-rate taxpayer, this allowance tapers away – eventually to nothing. If your child is earning more than the allowance in interest, for instance on savings built up over their whole childhood, an ISA might therefore be more tax efficient.

If they’ll earn more than £100 a year in interest from money gifted from parents or step-parents

Money that’s gifted from parents or stepparents has slightly different rules to savings gifted by other family members or friends.

Any cash in normal non-ISA savings accounts that earns more than £100 in interest per year will be taxed at the parent’s marginal rates. If the parent is still within their personal savings allowance, and the child’s savings don’t breach this, then the money is still tax free. However, once that limit is breached, then the whole savings pot interest will be taxed at the parents’ rate.

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