What is a Junior ISA?

Junior ISAs explained

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What a Junior ISA does

A Junior ISA could be a useful way to put money aside for your child’s future. With two options to choose from, you could provide a lump sum for your little one when they turn 18.

A Junior ISA is a children’s version of an Individual Savings Account and just like the grown-up version, there are two types — a Stocks and Shares Junior ISA and a Cash Junior ISA.

You can have both a Cash Junior ISA and a Stocks and Shares Junior ISA at the same time. As long as you don’t exceed the annual limit of £4,128, you can split your monthly savings or investments between the two.

So, for example you could invest £1,000 in a Cash Junior ISA and £3,128 in a Stocks and Shares Junior ISA over the course of the year. That way, you could give some of your money access to the long-term growth potential of the stock market while watching your cash grow month-to-month in a Cash Junior ISA.

You should be aware that children can only have one Stocks and Shares Junior ISA with one provider, and one Cash Junior ISA with one provider at any one time. (This is not the same as an adult ISA where you can change providers each tax year.)

Junior ISAs are adaptable because you can stop, re-start, lower and raise payments whenever you like. Once set up, anyone can put money in too. Everything saved or invested will go straight to the child and no one else.

Remember, because you’re investing for a child’s future, Junior ISAs are a long-term investment. Once the child turns 16, they can manage their savings or investments, but they won’t be able to withdraw anything until their 18th birthday.

The two types of Junior ISA explained

Cash Junior ISA

A Cash Junior ISA is similar to a regular child’s savings account in that it allows you to save money for your child tax-free. That means any interest gained on what you put away can’t be touched by the taxman.

As long as you continue to pay into your child's Cash Junior ISA, the overall amount can only ever go up. However bear in mind that low interest rates could mean that the return your child receives on your savings could struggle to outpace inflation. Scottish Friendly doesn't offer Cash Junior ISAs.

Stocks and Shares Junior ISA

With a Stocks and Shares Junior ISA, instead of a savings account, your money is put to work on the stock market in funds, bonds or individual shares. These Junior ISAs are also tax-free, which in this case means your investment grows free of income and capital gains tax (other than tax on dividends from UK shares).

Because it’s linked to stock market performance, your money has greater potential for growth if the market performs well. However, if the market doesn't perform well, the value of your investment can also go down.

For both Cash and Stocks and Shares Junior ISAs, you should be aware that tax treatment depends on individual circumstances and tax law may change in the future.

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Junior ISA allowance

Junior ISA allowance

The Government allowance lets you invest a total of £4,128 in Junior ISAs during the current 2017/2018 tax year.

Find out more about your child's Junior ISA allowance

So who can pay into a Junior ISA?

Who can pay into a Junior ISA?

A Junior ISA must be set up by the child’s parent or legal guardian, but once set up, anyone can contribute.

That means grandparents, aunts, uncles, and family friends can all help towards the youngster’s financial future.

Who can pay into a Junior ISA?

No advice has been provided by Scottish Friendly in relation to this plan. If you are in any doubt as to whether this plan is suitable for you, you should contact a financial adviser for advice. If you do not have a financial adviser, you can get details of local financial advisers by visiting www.unbiased.co.uk. Advisers may charge for providing such advice and should confirm any cost beforehand.