Following on from our previous article on funding education fees, we are looking at alternative ways of saving for children.
In this article we shall look at Junior ISAs, what they are, when they become available and why they need consideration when thinking about saving for children.
Last year the Government announced the launch of Junior ISAs. These plans will become available in November 2011 and it is widely expected that they will take the place of Child Trust Funds in people's consciousness.
It is estimated that around 6 million under 18s will be eligible when the accounts launch in 1st November. They will only be available to children who were born in 2011 or later or before 1st September 2002. Child Trust Funds will still be available for anyone born between those dates.
The Junior ISA offers a simple and transparent way to save for your child or grandchild's future, allowing investments of up to £3,000 per annum into each account per child. No income or capital gains tax will be liable on these plans.
Junior cash ISAs and Junior stocks & shares ISAs will be available, just as they are for adults.
Funds in a Junior ISA are tied up until the child reaches 18 years of age, at which point children are allowed full access to these monies and the account converts into an adult ISA.
Junior ISAs are yet another attempt by the Government to encourage saving for children in a tax free environment. The accounts are simple to understand and no doubt will become more popular than Child Trust Funds, as more providers come to market offering improved investment options.
They are not ideal for everyone though, as not all parents or grandparents will feel that their children are mature enough to use their savings to fund their education when they reach adulthood - some may decide to waste it on the latest craze and still end up with huge debts when they leave college. Under a Junior ISA, there is no control.
Equally the Government has yet to confirm how they will address the fact that currently anyone over 16 can own an adult cash ISA and a Junior ISA.
We support anything which encourages saving at an early age, which educates children in the value of money and paying your own way and which proves that investment doesn't need to be complicated. We think that these plans may well form a part of education funding strategies, but that they may work best alongside other strategies which safeguard against wastage at age 18.
We will keep you informed of developments in this market, but if you would like to discuss saving for your children or grandchildren, please contact me at paul.dawes@msfs.co.uk.
Tags: ISAs, child, planning, saving, education