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If you’ve decided now is the time to get your investing hat on and finally sort out a junior ISA for someone in the family, this article is for you. While it should be relatively easy to set up, you should know up front that the world of ISAs can be daunting if you don’t understand the lingo. And let’s face it, there’s always a fair amount of jargon associated with financial products.
You’ll have to know what level of investment you want to put in, just what stocks and shares this investment is going to be put in to, what the growth potential is going to be, and what level of risk is involved (and that’s before figuring out how you invest in it over time).
To help get you clued in before it becomes information overload, I’ve compiled some pointers to give direction and hopefully help you know what to look for when getting to grips with Junior ISAs.
Firstly, do your research
Don’t go diving in with the first ISA provider you come across because they have a special deal on just now or keep popping up on your feed after you’ve been searching online. Recently I’ve been getting more and more leaflets through the door for ISA companies when I buy products online, and some of the offers seem too good to be true – these are investments after all.
The options available for Junior ISAs vary from company to company, and I recommend reading up on those rates and fees from independent resources like the aptly named ISA.co.uk, who are a mixture of Compare The Market and Money Saving Expert for ISAs.
For example, look at how they lay out your Junior ISA options for a provider like Scottish Friendly and what some of the pros and cons are for using them over another provider.
Don’t get overwhelmed by all the information out there and start with just a handful of providers to compare.
Know exactly what you’re in for
I do recommend you have a good read over this 2017 post we did about whether Junior ISAs are the best way to save for children. Understand that there are other ways to invest, including:
- Children’s saving account in your bank
- Children’s bonds (don’t forget they’re backed by HM Treasury)
- Junior Self-Invested Personal Pension (see the post here I wrote on children’s pensions)
Each on to themselves is a unique way to invest, and one of them might be better based on your current situation and goals.
Keeping money saved via bonds or in a bank account are two of the safest options on the risk spectrum (they don’t have the volatility – the ups and downs – that stocks and shares ISAs do), but they will always have a lower level of interest due to their low level of risk.
**Check out this related post which discusses risk versus return**
Know how much you can invest
A Junior ISA isn’t like a bank account. There is a limit every year on how much can be put into one. For example, as I’m writing in the 2019/20 tax year, the Junior ISA limit is £4,368 (it typically goes up a little every year).
Why is there a limit? Because Junior ISAs are a tax-free investment; having no limit would incentivise parents who want to put money away somewhere tax-free and essentially give themselves a higher annual allowance without going over their personal savings allowance.
You can get savvy when saving with teenagers
16 and 17-year-olds are able to hold both Junior ISAs and regular ISAs at the same time. Although it’s not possible to move money between the two (don’t forget that Junior ISAs are locked down until a child turns 18) those two years are effectively a sweet spot as it provides a larger tax-free allowance.
Once a child turns 18, a junior ISAs will revert to a regular ISA.
One final tip: flip the switch every once in a while
You can switch ISA providers if you find that another company can provide better returns; in the case of a stocks and share ISA, this means lower fees. Keep an eye on your fees.
Make sure you open the new ISA first, then the new company will facilitate the switch for you. Do not shut the old junior ISA and remove the funds ready to put in to the new ISA as the amount you are able to invest will be capped at the annual allowance.
Want to know more about investing for children? Read this recent post on investing for children that lays out all the current options here in the UK; from giving a child a pension to teaching financial responsibility.