Junior ISAs were launched in November 2011 to provide an investment account to replace the outgoing Child Trust Fund.
At first these seem like a really good step to take by the Government. The adult versions such as Cash ISAs and Stocks and Shares ISAs are easily understood and well received year after year.
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People feel comfortable that they have now been around for many years and extending them to allow children to take advantage makes sense.
However some of the ISA rules surrounding the Junior version should be considered carefully if you are considering these for your child or grandchild. Some of the rules are very familiar. You can invest in a Junior Cash ISA or Stocks and Shares ISA and the limit is £3,720 per tax year. Savings will earn tax free interest and investments will grow in a tax efficient environment with no liability to capital gains tax, for example.
However what you must be aware of is that once money goes in to the Junior ISA you cannot take it back out, unless in very special circumstances. That means you have no opportunity to change your mind further down the line if you do invest into a Junior ISA. Those of you who follow my blogs will know that I am a big fan of accessing your money when you need it. So this is one rule you must appreciate carefully before opening a Junior ISA.
The other important rules to be aware of is that once money goes into the Junior ISA it becomes the property of the child. They will not be able to access it until they are 18. However at that point, the Junior ISA will convert to a normal (adult) ISA and they will enjoy full access to the money saved up or invested over the years on their behalf.
Potentially you could therefore hand over thousands of pounds to an 18 year old that has complete freedom to do what they will with that money. Though hopefully not a problem for the majority of you, there is that small potential for it to be used in a way that was not intended by you. Therefore retaining control over its use might also be something for you to consider carefully.