There are two types of Junior ISA which are a Junior Cash ISA and a Junior Stocks and Shares ISA. Below we focus on the Junior Cash ISA.
A Junior cash ISA is a Tax-free individual savings account (ISA) designed specifically for anyone under the age of 18 as a means to save for the long term. The Junior ISA is a type of Cash ISA and therefore is a deposit taking product rather than an investment product.
The Junior ISA is aimed at encouraging families to save for their children's futures which can cover costs such as driving lessons or university fees in the future once the child turns 18.
The Junior ISA must be opened by the parent or legal guardian of a child on their behalf. Any funds that are deposited into the account once opened then belongs to the child, which they are able to start managing from age 16 but are unable to withdraw until they turn 18.
Junior ISAs work in the same way as adult Cash ISAs, in which money paid into the account will earn interest without any tax deductions.
The Junior ISA is then automatically moved into an adult ISA once the child turns 18.
Only one Junior cash ISA and one junior shares ISA can be opened in any one tax year, in addition to this, a child can only hold one of each type at any one time.
Only the parent or legal guardian of a child is able to open a Junior ISA on their behalf. If a child is 16 or 17, they can have two ISA allowances which are the Junior ISA and the adult cash ISA.
To open a Junior ISA, the child must be under 18 and live in the UK.
The current 2019/2020 tax free ISA allowance sits at £4,368.
Children don't pay tax on the interest they earn on their savings with a Junior ISA, and neither does the parent or legal guardians. This is due to the tax wrapper in place for this particular product.
With both a Junior Cash ISA and Junior Stocks and Shares ISA you are able to switch from one provider to another, however it is important to understand that as you can only ever have one of each type of Junior ISA at any one time.
Like an adult Cash ISA, Junior Cash ISAs are protected by the Financial Services Compensation Scheme (FSCS). This amount is up to £85,000.