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Junior ISAs

A Junior ISA, or Individual Savings Account, is a tax-efficient method of saving for children that was launched in November 2011 to replace the Child Trust Fund, itself a government initiative since 2002.

Although saving for children has always been seen as a positive, one difficulty that has existed in the past is that is has been perceived as a means through which adults can avoid paying tax on interest received. Junior ISAs neatly sidestep this potential problem by dint of the fact that the parent forfeits the money, and indeed the right to withdraw it, once it has been deposited. The child legally owns the money as soon as it enters their account, and may be withdrawn only once he or she has reached eighteen years of age.

One of the major attractions of Junior ISAs is that anybody can pay money into them up to a maximum of £3,600 per year. This can be either a savings ISA or an investment version (bonds, shares, investment fund), or indeed any combination of them both. Income or other returns from Junior ISAs do not count towards a child’s tax allowance. Any income or other monetary gain can be considered tax free.

Unfortunately for those with existing Child Trust Funds, or who were eligible for one, they will not be permitted to be open Junior ISAs. Only those who were not eligible for a CTF will be able to take advantage of the new ISA.

There are of course disadvantages that anybody considering opening A Junior ISA will need to consider. First and foremost the fact that any monies invested in the Junior ISA cannot be withdrawn for as long as the account holder is under the age of eighteen, no matter what unexpected financial hardship may be encountered during the intervening period.

Secondly the junior ISA account holder is the sole owner of the account, and those contributing will have absolutely no say over what he or she does with the money if and when it is withdrawn.

Finally, as with any savings account there is of course the potential for inflation to erode the value of anything invested in the Junior ISA, even after interest received has been factored in.

As of November 2011 about six million children living in the United Kingdom were eligible for Junior ISAs, and each year thereafter around another 800,000 newborns will also qualify. Unlike with CTFs there is no government contribution made towards savings held in a junior ISA0

Compare Junior ISA deals online at the above junior ISA comparison websites and providers, and see if a junior ISA is the right product for you.

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