Should Junior have a Junior ISA?

We’re big fans of ISAs at Early Retirement and welcome the launch of a similar account for children.

From November 1, anyone aged less than 18 who is not already eligible to have a child trust fund (CTF) can open a Junior ISA. That means children born before September 1, 2002, or after January 2, 2011.

Parents, grandparents, other relatives and friends and the children themselves will be allowed to contribute up to £3,600 a year per child.

All funds saved or invested in the account will belong to the child and will be locked away until they reach adulthood at age 18. Money in a Junior ISA can be put on deposit or invested in stocks and shares.

Junior ISAs are tax-free savings vehicles for children and the successor to Child Trust Funds (CTFs), which were scrapped in January 2011.

Those with existing CTF accounts can continue to make contributions up to £1,200 a year. This limit will rise to £3,600 in line with the Junior ISA from November.

You won't be able to transfer CTFs into Junior ISAs, or vice versa, although this is something the government may consider once Junior ISAs have been launched.

Not all children will be eligible.

Any child with an existing CTF (born between 1 September 2002 and 2 January 2011) cannot have a Junior ISA, too.

Even so, millions of children will initially be eligible to open a Junior ISA from 1 November, with approximately 800,000 newborn babies joining each year. HM Revenue & Customs reckons that one in five children (20%) will open a Junior ISA. Based on parental contributions seen to CTFs, we should expect 1.2 million new tax-free junior savers to join the ISA boom. Also on 1 November, the maximum yearly contribution to a Child Trust Fund will rise to £3,600 from £1,200, so as to match the limit for Junior ISAs.