Choosing a Cash Junior ISA or a Stocks and Shares Junior ISA

Choosing a Cash Junior ISA or a Stocks and Shares Junior ISA

If you are looking for ways to save or invest for your children's future, you may be considering setting them up with a Junior ISA. A GoHenry Stocks and Shares Junior ISA is designed to make it easy to start investing in your child's future. A Junior ISA is a tax-efficient way to try build a lump sum that will give young people a welcome financial start as they enter adulthood.

 

Capital in a Stocks & Shares Junior ISA is at risk; the value of your investment can go down as well as up. Tax treatment depends on your individual circumstances and may be subject to change. 

 

A Cash Junior ISA is generally similar to a regular savings account, with the main difference being that you don’t pay tax on any interest up to the annual limit. With a Stocks and Shares Junior ISA, the money added into the account will be invested in stocks, shares, bonds and other assets, depending on the ISA in which you invest. It’s worth noting that while the potential for growth with a Stocks and Shares Junior ISA is higher, the value of your investment can go down as well as up.

 

Opening a Junior ISA can also help to show your child the importance and benefits of saving for the future and form part of their financial education. According to the latest CBI Economics analysis, adults who learned about money management in childhood save 43% more into their pensions each month than those who didn't.

 

Read on to learn more about these types of savings/investments and which might be better for your child – a Cash Junior ISA or a Stocks and Shares Junior ISA.

What is a Junior ISA?

A Junior ISA (Individual Savings Account) is a long-term, tax-efficient savings account. With a Cash Junior ISA, the money is held as cash, and interest accrues with time. The money won't decrease in value, but this type of account typically has a lower potential for growth than a Stocks and Shares Junior ISA.

 

Only a parent or guardian with parental responsibility can open a Junior ISA for a child, but anyone can pay into it. Each tax year, you can pay up to £9,000 into a Junior ISA, and the money is locked away until your child turns 18. Once the young person reaches 18, the account automatically switches to an adult ISA and your child can access the money.

What is a Stocks and Shares Junior ISA?

With a Stocks and Shares Junior ISA, the money is invested in funds, shares, bonds and other assets, depending on the ISA in which you invest. Money earned from trading investment funds, stocks, or bonds within a Stocks and Shares Junior ISA is tax-exempt up to the annual limit. But while these types of investments carry more risk than a Cash Junior ISA, they have the potential for more growth, but the value of your investment can go down as well as up.

Can you have a Cash Junior ISA and a Stocks and Shares Junior ISA?

You can have both a Junior Cash ISA and a Stocks and Shares Junior ISA. However, if you have both, you must not exceed the Junior ISA subscription limit when the two are added together. For the 2022-23 tax year, the Junior ISA limit is £9,000. If more than £9,000 is paid into your child's Junior ISAs, the extra money is likely to be held in a savings account in trust on behalf of your child until they turn 18 and any returns could be taxable.

What are the differences between a Cash Junior ISA and a Stocks and Shares Junior ISA?

You can take advantage of a Cash Junior ISA, and a Stocks and Shares Junior ISA, to make long-term investments for children. However, they do have some key differences.

Cash Junior ISA

This type of Junior ISA is like a regular savings account, but you don't pay tax on the interest, up to the annual limit, and the money is locked away until your child is 18. The impact of inflation may affect the value of the interest accrued over the term of the cash Junior ISA.

Stocks and Shares Junior ISA

This type of Junior ISA is an instrument to invest your child's money in stocks, shares, bonds and other assets. It will function similarly to a regular Stocks and Shares ISA. Any returns on the investments are tax-free up to the annual limit. While the value of the investment can go up as well as down, there's a higher potential for growth with a Stocks and Shares Junior ISA, compared with a Cash Junior ISA. For example, between February 2021 and February 2022, the average interest on cash ISAs was 0.51%, but 6.92% for stocks and shares ISAs over the same period.  Please remember that past performance is not a reliable indicator of future results.

Can you lose money in a Junior ISA?

You won't lose money in a Cash Junior ISA, but inflation may erode the value of the savings over time. The main risk with Cash Junior ISAs is that the interest earned doesn't keep up with the rate of inflation and the money gradually loses value over time. 

 

There is a different type of risk with a Stocks and Shares Junior ISA. Depending on the performance of the investments, the value of the ISA may go down, especially in the short term.

Apply for a Junior ISA today with GoHenry

GoHenry offers a Junior ISA that you can apply for directly through the GoHenry app. GoHenry's Junior ISA is a Stocks and Shares Junior ISA and is simple to set up. You can begin investing with as little as £1 up to £9,000 each tax year on your child's behalf. Once you've set up your child's GoHenry Stocks and Shares Junior ISA, you can use your GoHenry app to manage payments into the ISA and keep an eye on the balance. There's also a handy calculator to help you understand what the Junior ISA might be worth once your child turns 18. However, projections are not a reliable indicator of future performance.

 

Once your child is 16, they can begin managing their GoHenry Junior ISA but have to wait until they turn 18 to access the money. At this point, their Junior ISA automatically switches to an adult ISA. 

 

Capital in a Stocks & Shares Junior ISA is at risk; the value of your investment can go down as well as up.  Tax treatment depends on your individual circumstances and may be subject to change.

 

For informational purposes only. 

The information provided is not intended to be investment, tax or legal advice - nor does it claim to be comprehensive. Speak to a professional, if you're unsure about whether investing is right for you. We do not endorse any third parties referenced.

 

Junior ISA rules and T&Cs apply. Investment services provided by gohenry Family Finance Limited, an Appointed Representative of Resolution Compliance Limited which is authorised and regulated by the Financial Conduct Authority: (FRN: 574048). 6958

 

 

https://cdn.gohenry.com/blog/authors/1629311305986@0x0.png
Written by GoHenry Published Apr 14, 2022 ● 6 min read