How to save for your children
The Junior ISA celebrated its first birthday last November, it was offered as a new and improved method of saving for parents and their children by the government in November 2011. Most parents with children under 18 say it’s important to save on behalf of their children but the majority are still not aware of the savings potential offered by a Junior ISA.
The Junior ISA is a simple tax efficient savings and investment account very similar to an adult ISA (Individual Savings Account) just a mini version of one, which allows parents, grandparents and family friends to invest in cash and stocks & shares but on behalf of their children. Launched in November 2011 the Junior ISA was a replacement for the Child Trust Fund (CTF). Approximately 6 million children are automatically eligible for a Junior ISA, those that were born before 1st September 2002 and after 2nd January 2011.
For many parents saving can be a daunting prospect; there are many options and considerations to be made, and often it is tough to choose what they would consider to be the right option.
In the case of the Junior ISA, this is made more daunting perhaps, by the fact that saving in this manner is very often a long-term commitment, meaning that those parents choosing to invest in a Junior ISA don’t want to make the wrong choice.
Who can have a Junior ISA?
This is a question that is constantly asked, and there are a few simple factors that determine whether a child will be eligible. They must:
- Be a resident of the UK
- Be under the age of 18
- NOT be eligible for a Child Trust Fund (any child born between 1st September 2002 and 1st January 2011 will have been issued with a Child Trust Fund automatically)
If they meet these straightforward requirements, then great!
Where to start when thinking about a Junior ISA?
Before taking out a plan many people begin to ask themselves ‘can I actually afford this’? One of the most attractive features about saving with a Junior ISA is the fact that the premium (the amount a parent can pay in to the Junior ISA) is hugely flexible. In fact premiums can start from as little as £10 per month and lump sum deposits are available too. Parents can choose how much to save, all the way up to the maximum of £3,600 this current financial year, increasing to £3,720 April 2013.
This means that, even in this tough economic climate, a Junior ISA is a very accessible method of saving. And if at any time your circumstances change such as your monthly budget expands, or shrinks, you simply contact your provider to change your premium amount. Simple.
A whole Family Commitment
One of the great things about Junior ISA’s is how they allow family and friends to contribute towards the plan. This means that should grandparents, siblings or close friends that want to put money towards the fund, they are welcome to do so, making it a great way for them to contribute on birthday’s or special occasions. And the fact that a direct debit doesn’t have to be set up (you can pay in just lump sums if and when it pleases you) means that this is hardly a taxing commitment, which brings us onto the next point…….
The Tax Umbrella
The final point to make, and this really is an important one, is that Junior ISA’s do not pay any tax on the final lump sum the child will receive at the end of the plan. Basically the child’s money is under an umbrella, sheltered from the tax man who cannot touch it. This obviously means it is a very effective method of saving.
Source: Junior ISA – Shepherds Friendly