A Junior Individual Savings Account (JISA) is an investment vehicle designed to help children save for the future and make the best use of their money. A Junior ISA allows parents, guardians or family friends to pay into a tax-free account (up to the annual limit) for a child under the age of 18 where the money saved can grow over time. With a Junior ISA, a child will benefit from tax efficiencies and, with regular deposits, enjoy a potentially substantial savings pot when they reach adulthood.

Cash Vs. Investment ISA

When choosing a Junior ISA, it is important to understand the different types of accounts available. There are two types of Junior ISA, Junior Investment ISAs and Junior Cash ISAs. There are some key points of differences between the two types of ISA. A Junior Cash ISA is more akin to a savings account and offers a fixed rate of interest on the deposited money. It is generally suited for those who wish to invest over a shorter period of time or the very risk averse. Much like a savings account, there are no major risks involved and the interest rate is fixed. On the other hand, a Junior Stocks and Shares ISA provides more potential for growth as it can be invested in a diverse portfolio dependent on your attitude to risk. While this provides more potential for profits, it also exposes the child’s funds to higher short-term risks. Where both products are similar is that the investments are locked away on behalf of the child until they turn 18.

Choose the right profile for you

When selecting the best Junior ISA for your child, it’s important to consider their age and stage in life. You also need to consider how risk-averse you (as the named individual on the account) are. A Junior ISA, from the Children’s ISA, for instance, comes with three different investment profiles – Defensive, Balanced and Adventurous which allows the named individual to choose what is the best option for the child at that point in their life. Of course, like all investments, a Junior ISA should be considered in a long-term context. Both Junior and Cash ISAs will benefit from what some people refer to as the eighth wonder of the world, compound interest, but the longer that interest can compound, the better. It’s also worth noting that investments, over the long term, tend to outperform cash. 

Since both types of Junior ISAs are tax-free (up to the annual limit), it is important to calculate potential savings that your child could benefit from over the long term. This will make it easier for you to decide which type of ISA to open and how much money you should put into it. Additionally, you should evaluate the risks associated with each option and make sure that you understand the rules, requirements, and restrictions associated with each type of account.

A Junior ISA is a great way to help your child start saving for their future and build their financial resources. As with many financial products, there is a wealth of choice in the market so it is important you take time to understand the different types of accounts available, you can make sure to select the best fit for you and your child’s needs.