People have lots of questions about Junior ISAs, so we thought it would be helpful to give you answers to the 10 most searched questions about Junior ISAs.
1. What is a Junior ISA?
A Junior ISA (Individual Savings Account) is a tax-efficient savings account available for children under the age of 18 in the UK. The account has to be opened by the child’s parent or guardian on behalf of the child but others can make contributions into it (how easy this is to do depends on the account provider). There are 2 different types of Junior ISAs, cash JISAs and stocks & shares JISAs, which is what Beanstalk offers. A child is only allowed one of each type. The funds in a Junior ISA belong to the child and cannot normally be accessed until the child turns 18.
2. How much can be contributed to a Junior ISA?
The Government sets a limit on how much in total can be contributed into a Junior ISA in each tax year. For the tax year 2023/24, the annual contribution limit for a Junior ISA is £9,000. This limit is subject to change each tax year. Contributions can be split between a cash Junior ISA and a stocks & shares Junior ISA as long as the total does not exceed the allowance.
3. Are Junior ISAs tax-free?
Yes, Junior ISAs are tax-free savings or investment accounts. This means that any interest, dividends, or capital gains earned within the account are not subject to income tax, dividend tax, or capital gains tax.
4. Can I open a Junior ISA for my child?
Yes, parents and legal guardians can open a Junior ISA on behalf of their child. Only one Junior ISA of each type can be opened per child, but the child can have both a cash Junior ISA and a stocks and shares Junior ISA simultaneously and these can be held with different providers. If your child already has a Junior ISA and you wish to open another of the same type with a new provider you will need to transfer the old account over. Beanstalk makes this process very simple by taking the care of the whole switching process.
5. What is the difference between a cash Junior ISA and a stocks and shares Junior ISA?
A cash Junior ISA is similar to a regular savings account and holds money in cash, usually earning interest. A stocks and shares Junior ISA invests the money in a range of investment products , such as stocks, bonds, and funds depending on what is offered by the provider.
Although cash Junior ISAs give certainty (you know that the savings will grow by the interest rate), one thing to think about is the effect of the inflation rate on the value of your child’s savings. If inflation (the general increase in cost each year of goods and services) is higher than the interest rate, then despite the fact your savings have grown, they will be able to buy less with the money than they could at the start.
Unlike saving where your returns are dependent on the interest rate, returns from investing depend on how well the investments do. There is of course a risk that you could end up with less than you put in but evidence suggests that, over the long term, stocks and shares tend to outperform cash as the returns can compensate for the ups and downs. For example, the Barclays Equity Gilt Study in 2019 showed that over 50 years, UK shares would have returned 4.7% whereas cash would have returned 1.1%. In some years cash would have significantly outperformed equities but over the longer term it was the other way around.
6. Can I switch from a cash Junior ISA to a stocks and shares Junior ISA?
Yes, it is possible to switch from a cash Junior ISA to a stocks and shares Junior ISA. You are able to transfer the funds from one account to another without affecting your annual contribution limit. Beanstalk makes it very simple to transfer your child’s Junior ISA, you can start the process on the app.
7. What happens when the child turns 18?
When the child turns 18, the Junior ISA automatically converts into an adult ISA. The child gains full control of the account, and it becomes their responsibility to manage and make decisions regarding the funds.
8. Can I withdraw money from a Junior ISA?
No, money cannot be withdrawn from a Junior ISA until the child turns 18, except in the unfortunate cases of terminal illness or death. Money, once contributed to the Junior ISA, legally belongs to the child but cannot be accessed by them until they are 18, at which time they can decide how to use the funds, which could withdrawing the money or leaving it invested. You can find out more about this on the government website.
9. Can anyone contribute to a Junior ISA?
Yes, anyone can contribute to a Junior ISA, including parents, grandparents, other relatives, or friends. However, the total annual contributions must not exceed the annual contribution limit set for the tax year. How easy it is to contribute to a JISA can vary from provider to provider. Beanstalk’s Invite and gift links tools make it very simple for others to contribute to a child’s Beanstalk Junior ISA.
10. Can I open a Junior ISA if my child already has a Child Trust Fund (CTF)?
A child is not allowed to hold both a Child Trust Fund and a Junior ISA. However, you can transfer the funds from a Child Trust Fund into a Junior ISA so if you wish to open one, the new Junior ISA provider will arrange the transfer for you. You can see how much you could save in fees by transferring your child’s CTF to Beanstalk by using our Switch & Save Calculator.