The Case Against Junior ISAs

Junior ISAs sound like a great idea, in theory. Parents can save up to £4,260 a year for each child. The money can be left in cash or invested in the stock market, with the returns added to the account tax-free.

But Junior ISAs, which were introduced in 2011, have one major flaw: The money passes to control of the child when they reach the age of 18.

Many parents will be more comfortable opening an easyMoney innovative finance ISA in their own name, and earmarking the money in it for their children.

Can you trust your teen?

Your new born baby might look like a bundle of joy now, but who knows what your little darling will be like in 18 years’ time?

While parents generally hope they will have raised a sensible, responsible young adult, teenagers aren’t known for their common sense decision making. For every 18-year-old who saves the money in their Junior ISA for university or a house deposit, there will be many more who blow it on booze and fast cars, or just waste it.

A long-term savings plan

Having a long-term investment plan for your kids is a great idea – but putting the money in your kids’ name is a massive gamble.

Many parents take a more prudent approach and use some of their own ISA allowance of £20,000 to put some money aside for their children.

This way the money stays safely in your control and you can hand it over to your offspring when you see fit – to support them while studying or to get on the property ladder, for example. 

How about an easyMoney account with target returns of 3.67-8% p.a.? easyMoney accounts are available to both regular and ISA investors. While ISAs have a maximum investment allowance of £20,000 a year, you can save as much as you like in a regular account. However, bear in mind that the interest you earn will count towards your personal savings allowance. 

With both options, you can ask to withdraw your money at any time – and so help your kids whenever they need it.

Child Trust Funds reach maturity

Child Trust Funds (CTFs) were available to children born between 1 September 2002 and 2 January 2011, but they have now been replaced by Junior ISAs. Similar to Junior ISAs, CTFs are in the child’s name. The accounts benefit from a government contribution of £250 or £500 when the account is opened, plus a further contribution on the child’s seventh birthday.

Teenagers can take control of their CTF account when they reach 16 – so the first children to get the accounts will be taking control of them this year. However, they can’t withdraw the cash until they reach 18 so we have two years to wait and see how responsible (or otherwise) millennials are likely to be. 

Anyone with a CTF for their child can transfer money held in it into a Junior ISA.

Teaching your child about money

Saving for your child in an account in your name, rather than theirs, still gives you the opportunity to teach them about money. You can discuss investment decisions with them and talk about asset allocation and risk. 

Your asset allocation might involve investing some money in the stock market and other cash in an easyMoney innovative finance ISA. The account has expected returns between 3.67-8% and accepts transfers in from cash ISAs, stocks and shares ISAs, and other innovative finance ISAs. The expected return is a lot higher than the cash savings rates on offer.

You can open an easyMoney account at easymoney.com or by calling 020 3858 7269. You can either start from scratch or transfer from other stocks and shares or cash ISAs. The minimum investment is £100. Remember, as with all investing, your capital is at risk. If you invest £1,000 or more you’ll receive an easyMoney Plus card for free offering some serious discounts at more than 100 of the UK’s biggest retailers

easyMoney is not a cash savings account. You may not get back the full amount you put in. Your capital is at risk if you invest. Peer-to-peer investments are eligible for an Innovative Finance ISA which is not a Cash ISA. They are not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.

easyMoney is the trading name of E-money Capital Ltd, a company incorporated in England & Wales. Registered office is 5 Fleet Place, London, England, EC4M 7RD (Company No. 04861007). E-money Capital Ltd is authorised and regulated by the Financial Conduct Authority (FCA) #231680.