Junior stocks and shares ISAs

Junior stocks and shares ISAs are very similar to adult ISAs, except they’re for youngsters. They’re a tax-efficient way of saving up for your child’s future – whether you want to regularly save for them, make one-off payments or share the details so eager grandparents and friends can save up for them. Junior ISAs aren’t the same as junior bank accounts, as any money paid into it is locked in until the child is 18. On this date, your “child” (who has grown up much too fast) will get control of everything in the account, including any investment profits. They can then do whatever they want with it – so you can only use your powers of persuasion to get them to use it for something sensible.

There are 2 different types of JISA – stocks and shares JISAs and cash JISAs. We’re focusing solely on the stocks and shares JISA here, which lets you invest with the money paid into the JISA.

Junior stocks and shares ISA comparison

What are the key differences between ISAs and JISAs?

Junior ISAs are similar to adult ones, except that:

• The tax-free allowance is £9,000 in each tax year.
• All money paid in by you or anyone else belongs to the child and can’t be accessed until the child turns 18. If you want to open a JISA with another provider, you’ll have to transfer it.

How do JISAs work?

Like ISAs, JISAs are tax free – which means that you can save up to your annual allowance without paying any tax on the profits.

The child’s legal guardian or parent needs to open the account, but anyone is able to pay in. There are a lot of providers that offer JISAs, including ones that offer individual shares to build your own portfolio and ones that have ready-made options. Think about what it is that you’re looking for, such as whether you want to choose your own investments or if you’d like to choose a portfolio.

With the JISA, you can invest in stocks, shares and other investment types on the child’s behalf. A great benefit to this is that the money is locked in for up to 18 years, so it has plenty of time to grow.

Child Trust Funds

If your child has a Child Trust Fund, it can be transferred into a JISA. They might have one if they were born between 2002 and 2011. If the child isn’t much of a child anymore and is already over 16, it can be transferred to an adult cash ISA. Otherwise they can access their money at 18 or choose to transfer it into an ISA later down the line. Those aged 16–17 can take out a regular cash ISA to save up to £20,000 per year as well as £9,000 in a JISA.

Types of stocks and shares JISAs

There are 2 main ways to invest in a stocks and shares JISA:

DIY

This option tends to be chosen by people that invest already. That doesn’t mean to say that you shouldn’t go for it if you don’t invest already. It’s where you’d pick out the individual investments for the portfolio – you’d be in charge of making sure it’s diversified and rebalancing it over time. You’d also need to keep an eye on the individual stocks to look at how they’re performing and decide whether you want to sell.

This sounds like a lot of work, but ideally you wouldn’t look at it too often, as a volatile market might spook you into selling. Remember, you have until your child turns 18 to keep this invested, so as long as it’s well diversified, it should have a good opportunity to grow over this time.

DIY portfolios are offered by plenty of investment providers, although finding one that also lets you invest in a JISA is a little harder to come by, but there are plenty of choices available. With DIY options, you would manage the account as if it were your own, but the money would belong to the child named on the account.

Think of these like: Donning the power tools and building yourself a piece of furniture by scratch to fit the exact measurements you need, then decorating it to match your colour schemes.

Robo-advisors

If you’re not too bothered about choosing individual stocks and shares, or if you’re concerned about maintaining the portfolio yourself, you could opt for a ready-made option. These are offered by providers called “robo-advisors”, but can also be offered by providers that offer DIY investing.

Robo-advisors have a selection of different portfolios that are ready-made. They’ll be presented with defining features that divide them – for example, Wombat has created themed portfolios, such as specifically British companies or companies with female leads. Portfolios are commonly organised by risk – this is a gauge of how much risk you’d be taking on by investing in that portfolio, based on the types of investments it contains. A lower risk score is less risky, but has less profit potential, while the opposite is true of a higher one.

Sometimes robo-advisors suggest a portfolio for you, based on your answers to a short questionnaire. This is like a virtual personal shopper: it matches up how you feel about risk and your investment timelines with the portfolios on offer to help you understand which is best for you.

Robo-advisors are a good choice for beginner investors, but they tend to come with higher costs. Most of the robo-advisors we’ve reviewed on our site offer JISAs, including Wealthify, Moneyfarm and Moneybox.

Think of these like: Popping down to IKEA and getting yourself some ready-made furniture that’s been picked out to match your chosen colour schemes and the theme of your house.

Example: Junior stocks and shares ISA

Let's say you've just had a baby. You're getting through the sleepless nights and soggy nappies, and people are approaching you to ask where they can start saving for your new child. Ideally, you'd like any money to be saved for when they really need it, such as to put a deposit on a house or to go towards their time at university.

Say, for example, you were to put £500 into your child's JISA each year including the year that they turn 18, the child could have £15,269.50 at the end of the period, if we assumed an interest rate of 5% and didn't consider fees. In total, you would have deposited £7,600, so you'd have gained £7,669.50 in interest.

Because the money is locked away for such a long period, and interest gains aren't withdrawn, you can make interest on previously earned interest. This is called compounding, and is one of the main reasons it's best to start saving money for things like your retirement early.

If the stock market performs better – say you see growth of 7%, then they could have £18,689.48 by the end of their 18th year. You'd have still deposited £7,600, so a massive £11,089.48 would be interest.

If the stock market doesn't perform very well and you just see annual growth of 2%, then the child would have £11,420.28. This would include interest of £3,820.28.

* This is a fictional, but realistic, example.

Are JISAs suitable for me?

These accounts might be suitable for you if you’re happy to lock away the money until the child turns 18. It could also be a good choice if you have a lot to give them (we’re talking up to £9,000 per year).

How to compare stocks and shares JISAs

There might seem like there’s not much that separates stocks and shares JISAs offered by different providers, but there could be key things that you’ve not considered that would be useful to factor in when deciding which one to go with.

1. Decide how hands-on you’d like to be. If you’re not interested in choosing investments yourself, you can go with a robo-advisor.
2. Look at the fees involved. Robo-advisors cost a little more, but you’re paying for a service. You should look at the fees for the amount you want to invest and the timeframe you’re interested in.
3. What tools do you want? Robo-advisors have fewer trading tools available than DIY investment platforms, but it’s typically because someone else is managing it for you. If you’re going to be making regular trades, consider which tools are essential and which ones you’d ideally like to use.
4. What do you want to invest in? Whether you’re interested in stocks, funds, bonds or any other type of investment, you’d need to make sure your provider has them available. Consider whether you’ll want to invest in overseas shares, as some providers are specific to some exchanges.

How much do stocks and shares JISAs cost?

This depends on several factors:

• How much are you investing? Some providers charge a percentage of the amount you’re investing, known as the platform charge, while others will charge you per trade, known as commission. This differs between types of JISA – robo-advisors tend to charge a platform charge while DIY providers tend to charge commission.
• Are you using robo-advice? Robo-advisors cost a little more than brokers, but you’ll save a lot of time, especially if you’re an inexperienced investor.
• Are you trading overseas shares? For DIY portfolios, if you’re trading shares that are listed on overseas stock exchanges, you might need to pay a foreign exchange fee to make the transaction. This is typically a small percentage of the amount you’re converting.

Any UK shares that are traded electronically incur 0.5% stamp duty reserve tax. You may also need to consider inactivity fees, which are fees charged to you when you’re not using your account.

Our comparison table details some of the main fees on these accounts.

Pros and cons of junior stocks and shares ISAs

Bottom line

Junior stocks and shares ISAs can be a great, tax-efficient way to save up for your child’s future. Parents tend to choose them because they lock away any savings until the child is 18 and they give them the chance to grow their savings without paying tax on profits.

With interest rates as low as they are, junior stocks and shares ISAs can be appealing, but be aware that they lock away your savings, so if interest rates rise, you can’t withdraw it to put into a savings account.

All investing should be regarded as longer term. The value of your investments can go up and down, and you may get back less than you invest. Past performance is no guarantee of future results. If you’re not sure which investments are right for you, please seek out a financial adviser. Capital at risk.