In anticipation of their November launch date, more details are emerging about the new junior individual savings accounts (Jisas). These are the replacements for the now-defunct child trust funds (CTFs). The government has announced that they will have an annual limit of £3,600, meaning you can deposit up to that amount into the account and you will pay no tax on the interest or capital growth. It has also been confirmed that both cash Jisas, and stocks and shares versions will be available and children will be able to hold one of each.
As with the CTF, the Jisa will be in the child’s name and the money will be locked away until the child turns 18, when they will be able to get at the cash and the account will automatically convert into an adult Isa. From 1 November the accounts will be available to any child under 18 who was born on, or after 3 January 2011, or before September 2002 – in effect any child who didn’t qualify for a CTF. Anyone who already has a CTF will see their annual investment limit increased from £1,200 to £3,600 to bring them in line with Jisas. The government has also revealed a financial education element to the Jisas as children will be able to manage their own accounts from the age of 16, although they won’t be able to get their hands on the money until they are 18. Hopefully that will encourage some children to take an interest in their own finances – and perhaps be savvy enough by the time they get their hands on their money not to squander the lot.
Fidelity has also announced that it will offer a Jisa and the group has been busy doing its sums to promote the savings accounts. If the full Jisa allowance was invested every year from birth until the age of 18, with an assumed growth rate of 5% (that seems a bit generous right now), and allowing for inflation of 2.5%, the total Isa would be worth £101,336.52. Obviously, that’s investing in stocks and shares – when it comes to cash, the interest rates available on child savings accounts are incredibly meagre, with few offering more than 1% interest.
Our view on Jisas is similar to that on CTFs – the key downside is that your children will take charge of the money when they turn 18. Bearing in mind that they may favour blowing the lot on a gap year rather than university fees, we’d rather maintain control.