An Introduction to the Junior ISA

The Junior ISA will likely be launched in November 2011 and has in some ways been designed as a replacement for the Child Trust Fund, which was discontinued after the current government came to power.

What was the Child Trust Fund?

The Child Trust Fund was introduced by the previous Labour government to encourage saving on behalf of children. Parents were given a ?250 CTF voucher when their child was born that they could invest in a choice of investment products. They were given another ?250 voucher upon their child's seventh birthday, although few reached this age before the scheme was discontinued. Parents were also able to invest up to ?1,200 a year in the account, with interest gained on this plus the invested voucher. The idea was for children to then have access to the accumulated amount from their eighteenth birthday. This scheme will continue for children who already had a Child Trust Fund set up on their behalf but without the seven year payment from the government. This means that for the most part things won't change for those who have a Child Trust Fund.

The Junior ISA

The Junior ISA will be in place of the Child Trust Fund. Children born before or after the period the Child Trust Fund was in operation for will be eligible. Parents won't get the two payments from the government, therefore saving the government money, which was the main reason for the Child Trust Fund being scrapped.

The Junior ISA will offer tax free savings meaning a good opportunity for parents to save on behalf of their children so they have some funds to begin their adult life with. It will have many of the benefits of a regular ISA in terms of the tax free benefits. Accounts will be available from High Street Banks, Building Societies and other ISA Providers.

As with an adult ISA, investments will be able to be made into a Cash ISA or Stocks and Shares ISA according to parents' preference. This can be split however parents see fit.

How Much can be Invested?

The amount parents will be able to invest will be increasing from the limit of the Child Trust Fund. It will likely increase from ?1,200 to ?3,000 a year. The reason there is a limit is so there isn't a potentially endless amount of tax free savings.

The money will be locked into the account until a child turns eighteen. At this age the account will automatically become an adult ISA. It can then be withdrawn or can be invested in further according to the rules that apply to a regular ISA.

If parents are able to invest the full amount of around ?3,000 a year, with interest it could be worth over ?100,000 after eighteen years. Even for those who can't afford to invest such a high amount a little each month could build up to a significant amount over an eighteen year period. Some have criticised the government for withdrawing the payment they contributed but over an eighteen year period the two ?250 payments were only the equivalent to ?28 a year or ?2.32 a month.

Andrew Marshall (c)

Jump Savings will be launching a Junior ISA Plan when the scheme begins. For more details visit their website.

Source: http://ezinearticles.com/6420803

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