Answers to common questions about child savings sent to Martin Lewis

The Beanstalk Team 4 min reading
Answers to common questions about child savings sent to Martin Lewis

In December Martin Lewis posted on his social channels asking for questions about child savings for his podcast. We spotted some really great questions and many that were asked by multiple people, so decided to collate them and share our answers as we’re sure there are lots of families who would find it helpful.

Question: When a child turns 18 mid-year, do they receive an adult’s ISA allowance for that tax year, or a child’s allowance?

Answer: Once turning 18 the child will get the £20k allowance minus however much was paid into the Junior ISA already in that tax year. The £20k limit applies over all ISAs opened and contributions in the same tax year.

So if £4,000 was paid into a Junior ISA in the same tax year that it matures to an adult ISA, the allowance remaining will be £16,000.

Question: Is there any kind of account a child can’t automatically access at 18? I want to save for the longer term but I'm worried about them suddenly having access to money when they may not yet be responsible.

Answer: This is a concern we’ve heard from quite a lot of parents, so unsurprised to see Martin Lewis being asked this too. What we have seen with Junior ISAs that have matured is that, for low value accounts with a few hundred pounds, the full amount is usually withdrawn relatively quickly but for larger value accounts, this is not normally the case, with some withdrawals being made but the child continuing to leave money invested for the future. Indeed we have some accounts where due to investment growth the value is as much as it was on maturity despite the child withdrawing money. Our advice is to discuss with the child their plans in advance of the account maturing.

Financial education is really important to help them learn about the value of money and something you can do as the child grows up. There are many websites and charities out there that focus on financial education for young people that can support you with this.

Regarding the types of accounts and what ages they can be accessed:

  • Cash and stocks & shares JISAs are at 18
  • Junior SIPP turns into an adult SIPP at 18 and then can be accessed at 55
  • Bank and building society accounts - these can vary depending on type of account and provider
  • Premium bonds is at 16

Question: Can I use a Junior SIPP and stocks & shares Junior ISA at the same time? What changes for limits if I use both?

Answer: Yes you can pay into a Junior SIPP and stocks & shares Junior ISA at the same time. The allowances for these are separate. You can pay up to £2,880 into a Junior SIPP each year, with 20% tax relief topping this up to an annual maximum of £3,600. You can pay £9,000 into a Junior ISA each year.

Question: How can you save for children (nieces, nephews, grandchildren) that aren't yours?

Answer: This was a very common question on Martin Lewis’ posts. Saving for a grandchild, niece or nephew is something many would like to do but isn’t always very simple. Many types of accounts like Junior ISAs can accept contributions from friends and family but they need to be opened by the parent or legal guardian.

Making it as easy as possible for grandparents and other family and friends to save for a child was very important to us when launching Beanstalk. They can start the account opening process for the parent on the app and then once the parent has completed it, they can then directly contribute to the account through their own version of the app. You can read our article with more information into this.

Question: How does tax on interest for child accounts work? I understand it is linked to parents tax level but if they pay different levels is it the higher one? Or worked out another way?

Answer: Parents will only need to pay tax on interest in a child’s savings account if the child gets more than £100 in interest from the money given by a parent. The parent will have to pay tax on all the interest if it’s above their own Personal Savings Allowance.

There are a few ways to try to avoid this, they are:

  • Open a Junior ISA, you have a £9,000 allowance you can pay in each tax year and any interest or gain is normally tax free.
  • Make sure it’s not just one parent that is paying into the account, as the limit is per parent, per child.
  • Let family and friends contribute too as the limit only applies to money given by parents.

Question: What's the best thing to do with a Child Trust Fund for a 16 year old? Can they withdraw before they are 18? Can they transfer elsewhere?

Answer: There were many questions for Martin Lewis about Child Trust Funds, how to locate them, whether to transfer them and how to go about doing this and what happens when the child turns 18.

How to locate a Child Trust Fund: It’s relatively simple to find yours or your child’s CTF as all were registered with HMRC. You can request a form to find out who the Child Trust Fund provider is on the government website.

Should I transfer my child’s Child Trust Fund: The decision on whether to transfer is obviously up to you. If you think you are paying too much in fees or are disappointed with the returns on your child’s account, then transferring could be a sensible thing to do. Generally CTFs have become less attractive as providers are not competing for new accounts (e.g. Cash CTFs interest rates tend to be lower than cash Junior ISAs) and fees on Stakeholder CTFs (and some Stocks & Shares JISAs) are typically around 1.5%, significantly higher than for Beanstalk. Our Switch & Save Calculator will show if you could save money in fees by transferring.

What happens to my child’s Child Trust Fund when they turn 18: Once the child turns 18 the account matures and they become the account holder. In the run up to the child turning 18 the existing provider will get in touch to explain what happens next and to give an up to date value of the account. They then have the decision to either withdraw all the money or transfer it to an adult ISA; at that point no further contributions can be made to the CTF.

Question: Can a Junior ISA be transferred by a parent into a Lifetime ISA so that that child can't access it at 16?

Answer: No, a Junior ISA can’t be transferred by a parent into a lifetime ISA. The Junior ISA belongs to the child and is locked away until they are 18. Once they turn 18 and the account matures, they are then in control of the savings.

Question: Why don't banks do proper bank accounts for children younger than 11? I don't want a saver. How are we supposed to encourage safe spending, budgeting and banking?

Answer: An alternative to a bank account for young children is to look into a pocket money card, like nimbl. Nimbl is for children age 6-18 and aims to help them to develop money skills focused on earning, saving and spending. Parents can track, manage and control their spend in an app.

We hope you find these answers as helpful as the ones Martin Lewis gave on his podcast. If you have any questions about the answers provided or about Beanstalk, please get in contact.

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Beanstalk is an award-winning app designed to make it really simple to build a nest egg for your children or yourself. It’s packed with tools to help you save including our unique invite feature to let all the family link and save for your kids.

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Beanstalk is a trading name of KidStart Limited. KidStart Limited is authorised and regulated by the Financial Conduct Authority. Our FCA number is 473606. See http://www.fca.org.uk for more information.