Can I Set Up an Investment ISA for My Child?

Written on March 27, 2020

Written by Josie

Yes, it is possible for you to create a junior investment ISA for your child, enabling you to invest your child’s money into stocks and shares. It is a long-term savings account that is tax-free and can provide a lump sum to your child once they turn 18.  

What Are the Differences Between a Junior Cash ISA and a Junior Investment ISA? 

  junior-cash-ISA-v-junior-investment-ISA   Depending on your individual circumstances and aims, one may be a better fit for you financially than the other. In summary, the main differences between a junior cash ISA and a junior investment ISA are:
  • Junior cash ISAs: this a cash based deposit savings accounts, which means that any money deposited in the account for your child is protected against potentially dropping in value. This kind of account provides variable interest rates which means that money in the account will be guaranteed to grow in value, providing that the interest rate remains above 0%.
  • Junior investment ISAs: are where you invest your child’s money into stocks and shares. This kind of account offer does not provide fixed interest or variable interest rates, but instead you will be offered a return based on the current performance of the stock market. It has the potential to offer higher returns on your investment than a Junior cash ISA, but can be subject to market volatility. See investment ISAs for more information. 
 

How Do I Open a Junior Investment ISA for My Child?

  open-junior-investment-ISA   If you would like to open a junior investment ISA, it is possible to do so through an investment ISA It is important to remember that it is only possible for the parent or legal guardian of a child to open a junior investment ISA. It is not possible to open one on behalf of someone else’s child.   

How Much Can Be Paid Into a Junior Investment ISA Each Year?

  pay-into-junior-investment-ISA   There is a junior ISA allowance in the UK of £4,260 which you can invest during the 2018/2019 tax year. It is worth keeping in mind that you will only be able to pay into one single junior investment ISA each tax year. Furthermore, it is not possible for money to be withdrawn from a junior investment ISA once it has been put in. The account only becomes accessible once your child has turned 18. At this point the account turns into an instant access ISA that is in their name.  

Why Choose a Junior Investment ISA? 

  why-junior-investment-ISA   You have the potential of getting much higher returns for your investment, which means your child will end up receiving a higher lump sum when they turn 18 than they would otherwise receive with a junior cash ISA, provided that shares have been invested correctly and they do well.  This kind of ISA also provides considerably more flexibility in terms of controlling what you invest in, and you have the opportunity to diversify your portfolio. This cash sum can give your child or the receiver a real start in life, which can be used for tuition, a new car or deposit on a property.  

Are There Risks Involved With Junior Investment ISAs?

  Investment-ISA-child   Yes. The same potential risks apply to junior investment ISAs as they do with standard investment ISAs for adults. Read about the pros and cons of investment ISAs here. For example, whilst investment ISAs have the potential to give you far higher returns on your investments than a cash ISA would, there is also the potential that you could lose money, sometimes dramatically so. This all comes down to the volatility of the stock market at the time, and how well the stocks and shares you have invested in ultimately do.  This is why you should always carefully consider getting an investment ISA, whether it be for you or your child. To find out more about ISAs and other financial products, please visit our blog.