We take a look at the similarities and differences between child savings accounts and Junior ISAs. They are both ways to build a pot of money for a child but is that the only thing they have in common?
What is a children’s savings account?
A children’s savings account is usually a simple bank account offered by banks and building societies for children up to 18.
As they are cash accounts any savings in them will earn interest, the percentage of interest will vary depending on the provider and account.
You can usually open a child savings account with as little as £1 and you don’t always need to be the child’s parent or legal guardian to do so. Some types can be opened by the child themselves, and there are others that allow the child to take over the account’s management once they are old enough.
Child savings accounts normally allow withdrawals before the child is 18.
What is a Junior ISA?
A Junior ISA is an account specifically designed to help parents and others save for a child’s future. The account is in the child’s name but managed by the parent or legal guardian until the child is 18 at which point the child takes over the account and can make withdrawals.
There are two types of Junior ISA: cash JISAs where the money is in a savings account paying interest and stocks & shares JISAs where the money is invested and the increase in value depends on how well the investments do. Any income or gains in value in Junior ISAs are tax-free.
What are the similarities between children’s savings accounts and Junior ISAs
There are a few ways that child savings accounts and Junior ISAs are similar:
- Both a child savings account and Junior ISA can be cash accounts which pay interest on the savings in the account.
- Both are ways to save for a child up to the age of 18.
- Both can be contributed to by other people, so grandparents and other family and friends are able to save too.
What are the differences between children’s savings accounts and Junior ISAs
There are a few ways that child savings account and Junior ISAs differ, these include:
- Junior ISAs can also be stocks & shares accounts where the money you contribute is invested and the increase in value depends on how well the investments do.
- Unlike savings accounts where the money can be withdrawn before the child turns 18, with a Junior ISA the money is locked away until the child turns 18 when the account matures.
- Junior ISAs are tax efficient accounts in that no income/capital gains tax are due on interest or gains in value. The maximum contribution is £9,000 a year. Savings accounts do not have a maximum limit but you may have to pay tax on the interest earned, find out more here.
- JISAs can only be opened by a parent or legal guardian, whereas child savings accounts can be opened by others, depending on the type
We hope this article gives you a basic introduction to child savings accounts and some of the similarities and differences with Junior ISAs. If you’d like to find out more about Junior ISAs you can download our free JISA Guide.