Investing in Junior ISAs
Save or invest for a child within a tax-free ISA. Junior ISAs can hold cash or investments, with the money belonging to the child and normally becoming available to them when they turn 18.
What is a Junior ISA?
A Junior ISA is a tax-free account for a child under 18. Money can be held as cash or invested through a stocks and shares Junior ISA, and any interest, investment income or capital gains within the account are free from UK Income Tax and Capital Gains Tax.
The money in a Junior ISA belongs to the child, even when contributions are made by a parent, grandparent or someone else. The child can take control of managing the account from age 16, but withdrawals are normally not permitted until they turn 18, when the Junior ISA becomes an adult ISA.
Learn how Junior ISAs work →How does a Junior ISA work?
A Junior ISA provides a tax-free account for money being saved or invested for a child. The account is managed on the child’s behalf while they are younger, before control eventually passes to them.
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01
Open a Junior ISA
A parent or guardian with parental responsibility can usually open a Junior ISA for an eligible child and becomes the registered contact responsible for managing the account.
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Choose cash, investments or both
Money can be held in a cash Junior ISA, a stocks and shares Junior ISA, or split between both types. The child can hold no more than one of each type at the same time.
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Contribute to the account
Parents, relatives and other people can contribute, provided total contributions remain within the child’s Junior ISA allowance for the tax year. Once contributed, the money belongs to the child.
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Interest or investment returns build tax-free
Cash Junior ISAs can earn interest, while stocks and shares Junior ISAs can generate investment returns or losses. Interest, investment income and capital gains within the Junior ISA are free from UK Income Tax and Capital Gains Tax.
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The child eventually takes control
The child can take over management of the Junior ISA from age 16, but normally cannot withdraw the money until age 18. At 18, the Junior ISA automatically becomes an adult ISA and the money becomes accessible to them.
Money contributed to a Junior ISA is normally locked away until the child turns 18, so contributions should be treated as money being given to the child for their future.
Can you lose money with a Junior ISA?
Whether money in a Junior ISA can fall in value depends largely on whether it is held in cash or invested. Cash and stocks and shares Junior ISAs have different ways in which the value of the child’s money can be affected.
Cash Junior ISAs
Money held in a cash Junior ISA does not rise and fall with investment markets and normally earns interest according to the account terms. However, if the interest rate is lower than inflation, the purchasing power of the child’s savings can fall over time.
Stocks and shares Junior ISAs
Money held in a stocks and shares Junior ISA is invested, so its value can rise or fall as the investments change in value. The child could ultimately receive less than the amount originally contributed, particularly if investments perform poorly or need to be sold after falling in value.
A simple example
Suppose £5,000 is contributed to a Junior ISA. If it is held in cash, the balance may grow as interest is added, although inflation could reduce what that money can buy. If the £5,000 is invested instead, its market value could increase above £5,000 or fall below it depending on how the investments perform.
A cash Junior ISA does not normally expose the child’s savings to investment-market losses, while a stocks and shares Junior ISA does. Both can still be affected by risks such as inflation, which can reduce the real value of money over time.
What are the risks of a Junior ISA?
Junior ISAs can hold either cash or investments, so the risks depend partly on which type is used. There are also important considerations that apply to Junior ISAs generally because the money belongs to the child and is normally inaccessible until they turn 18.
Investment risk
Money in a stocks and shares Junior ISA can rise or fall in value as investment markets change. There is no guarantee that the child will receive back the amount originally contributed, and investment performance can vary considerably over time.
Inflation risk
Inflation can reduce what the money will be able to buy in the future. This can affect cash Junior ISAs particularly if the interest earned is lower than the rate at which prices are rising.
Restricted access
Money contributed to a Junior ISA is normally locked away until the child turns 18. This means it generally cannot be withdrawn earlier if the parent, contributor or child later needs the money for another purpose.
The money belongs to the child
Contributions become the child’s money and cannot normally be reclaimed by the person who contributed them. At 18, the child gains access to the account and can decide what to do with the money.
When might a Junior ISA be useful?
A Junior ISA can provide a structured way to build money for a child’s future. Whether it is useful depends on how long the money can be left untouched, whether you want to save or invest, and whether you are comfortable with the money ultimately belonging to the child.
You are saving for the child's future
A Junior ISA can be used to build money over a number of years for the child to access when they reach adulthood, rather than for expenses that may arise while they are younger.
You want to save or invest tax-free
Interest, investment income and capital gains within a Junior ISA are free from UK Income Tax and Capital Gains Tax, allowing money to build within a dedicated tax-free account for the child.
Family and others want to contribute
Parents, grandparents, relatives and other people can contribute to a Junior ISA, provided total contributions remain within the child’s Junior ISA allowance for the tax year.
The money can remain untouched until 18
A Junior ISA may suit money that does not need to be accessed during the child’s younger years, because withdrawals are normally unavailable until they turn 18.
What are the main trade-offs?
A Junior ISA provides a tax-free way to build money for a child, but using one also means accepting restrictions over access and control. The choice between cash and investments introduces further differences to consider.
Potential benefits
Tax-free saving or investing
Interest, investment income and capital gains within a Junior ISA are free from UK Income Tax and Capital Gains Tax.
A dedicated account for the child
Money can be built up specifically for the child’s future, with contributions possible from parents, grandparents and other people.
Cash or investment options
Money can be held in cash, invested through a stocks and shares Junior ISA, or divided between the two types.
Things to consider
Money is normally locked away
Withdrawals are generally not available until the child turns 18, so money contributed cannot usually be accessed if circumstances change.
The money belongs to the child
Contributions become the child’s money. When they turn 18, they gain access to the account and can decide how the money is used.
Cash and investments carry different risks
Cash can lose purchasing power to inflation, while investments can fall in market value. The appropriate balance between the two can also change as the child approaches 18.
A Junior ISA exchanges flexibility and control over the money for a dedicated tax-free account that belongs to the child. The type of Junior ISA used also affects the risks and potential returns while the money is being built up.
What should you compare between Junior ISAs?
Junior ISAs can differ considerably between providers, and the factors that matter depend partly on whether the money will be held in cash or invested. Comparing the account type, returns, costs and practical features can help you understand those differences.
Cash or stocks and shares
Consider whether the money will be held in cash, invested, or divided between both types of Junior ISA. Cash and investments have different risks and potential outcomes.
Interest rates
For a cash Junior ISA, compare the interest rate being offered and whether it is fixed or variable. The rate affects how quickly the child’s cash savings can grow.
Investment choices
For a stocks and shares Junior ISA, compare the investments available through the provider. Some offer a broad range of funds and investments, while others provide a more limited selection.
Fees and charges
Stocks and shares Junior ISAs can have platform, fund, dealing or other investment charges. These costs reduce the amount of the investment return that remains in the account.
Transfer options
Check whether an existing Junior ISA can be transferred to the provider and what conditions apply. Transfers should follow the formal Junior ISA transfer process rather than withdrawing the money.
Provider features and service
How the account is managed, minimum contributions, regular-payment options and other features can vary between providers. These practical differences may matter when money will be contributed over many years.
Comparing Junior ISAs involves more than looking at a single rate or investment choice. The type of account, potential return, risks, costs and provider terms all affect how the child’s money may build over time.
How is money in a Junior ISA protected?
The protection available for a Junior ISA depends on whether the child’s money is held as cash or invested. The ISA wrapper itself does not guarantee the value of the money.
Cash Junior ISAs
Eligible cash deposits can receive FSCS protection
If a cash Junior ISA is held with a UK-authorised bank, building society or credit union, eligible deposits can be protected by the Financial Services Compensation Scheme if the firm fails.
Deposit protection
The protection limit applies per eligible person and authorised firm
Eligible deposits are currently protected up to £120,000 per person, per authorised firm. The limit can be shared across accounts held with banking brands operating under the same authorisation.
Stocks and shares Junior ISAs
Investment protection works differently
FSCS protection may apply to certain eligible claims if an authorised investment firm fails and cannot meet its obligations. It does not protect the child against investments falling in value or performing poorly.
Protection therefore depends on what the Junior ISA holds and which authorised firm provides the account or investment service. Cash deposit protection and investment protection cover different circumstances and neither removes all of the risks associated with the account.
Want to explore other types of ISA?
Junior ISAs are designed for saving or investing for a child, with the money normally becoming available to them at 18. Other types of ISA are designed for adults and work differently depending on whether you want to hold cash, invest or save towards particular goals.
Cash ISA
Hold cash savings within an ISA and earn interest without paying UK Income Tax on that interest.
Explore Cash ISAs →Stocks & Shares ISA
Hold eligible investments within an ISA, with the value of those investments able to rise or fall over time.
Explore Stocks & Shares ISAs →Lifetime ISA
Save or invest towards a first home or later life while receiving a government bonus, subject to eligibility and withdrawal rules.
Explore Lifetime ISAs →