When choosing a Junior ISA it's important to be aware that any child eligible for a Children's ISA will be able to either have one account opened, or two, and the difference depends partly on whether you wish to go for a safe, conservative and defensive investment, one more risky but potentially more profitable, or a balance between the two.
The two types of Junior ISA include the basic cash Junior ISA, and the stocks and shares Junior ISA. This latter type of children's account is also sometimes referred to as an investment Junior ISA. Both types of accounts offer the same basic advantages, with the interest being earned from either account being completely free of income tax, and with the opportunity for anyone, including grandparents, aunts and uncles and family friends being able to pay into the child's account.
Each child eligible for an account can either have one cash ISA, one in stocks and shares or one of each. Obviously if a child only has one account then they are limited to the annual £3,600 limit, but if they have two accounts, then the total limit over both accounts remains at £3,600. So a strictly balanced approach would see an annual limit of £1,800 paid into the cash ISA, and £1,800 paid in to the investment ISA.
So what are the risks, and why would people prefer one account over the other?
If you are a little more cautious, and don't like the idea of taking risks then it is probably best to go for the kind of investment which includes a broad mix of investment types, or fixed interest securities. A cash ISA will mean that whilst some of your money may be invested in shares, most of it won't be, and most of it will remain within the UK. Whilst there is no guarantee of growth, and it is always possible with any investment that you may lose some of what is invested compared to alternative risks which may have offered better growth, a cash ISA requires minimal involvement in decision-making and represents a low risk investment.
A stocks and shares Junior ISA will probably require slightly more investigation, with the opportunity to invest in specialist areas or new markets. There are often opportunities for very high returns on investment, but of course with a higher return there is always going to be a greater level of risk. This type of investment is often more exciting, and is generally better for those people who have some understanding both of the risks, and also of the opportunities available. Having a financial adviser will obviously be a significant advantage.
Most people tend to opt for a cash junior ISA, but if you are prepared to put a little more time and research into your child's investment then it may be best to open one of each type of account, and balance the investment accordingly.
It is essential though to be aware of what your children's ISA is actually for. Knowing whether it is simply going to cover the costs involved in buying their first car, getting themselves through university, or paying towards their first home will depend on the amount of money which will need to be invested as well as the type of investments most likely to see the gains required.
If in doubt a cash ISA is usually best, but if you understand the risks, and you would like to see more control over where your money is invested, and want to take advantage of the opportunity to maximise that investment than a stocks and shares Junior ISA may well be an exciting alternative to consider.
The two types of Junior ISA include the basic cash Junior ISA, and the stocks and shares Junior ISA. This latter type of children's account is also sometimes referred to as an investment Junior ISA. Both types of accounts offer the same basic advantages, with the interest being earned from either account being completely free of income tax, and with the opportunity for anyone, including grandparents, aunts and uncles and family friends being able to pay into the child's account.
Each child eligible for an account can either have one cash ISA, one in stocks and shares or one of each. Obviously if a child only has one account then they are limited to the annual £3,600 limit, but if they have two accounts, then the total limit over both accounts remains at £3,600. So a strictly balanced approach would see an annual limit of £1,800 paid into the cash ISA, and £1,800 paid in to the investment ISA.
So what are the risks, and why would people prefer one account over the other?
If you are a little more cautious, and don't like the idea of taking risks then it is probably best to go for the kind of investment which includes a broad mix of investment types, or fixed interest securities. A cash ISA will mean that whilst some of your money may be invested in shares, most of it won't be, and most of it will remain within the UK. Whilst there is no guarantee of growth, and it is always possible with any investment that you may lose some of what is invested compared to alternative risks which may have offered better growth, a cash ISA requires minimal involvement in decision-making and represents a low risk investment.
A stocks and shares Junior ISA will probably require slightly more investigation, with the opportunity to invest in specialist areas or new markets. There are often opportunities for very high returns on investment, but of course with a higher return there is always going to be a greater level of risk. This type of investment is often more exciting, and is generally better for those people who have some understanding both of the risks, and also of the opportunities available. Having a financial adviser will obviously be a significant advantage.
Most people tend to opt for a cash junior ISA, but if you are prepared to put a little more time and research into your child's investment then it may be best to open one of each type of account, and balance the investment accordingly.
It is essential though to be aware of what your children's ISA is actually for. Knowing whether it is simply going to cover the costs involved in buying their first car, getting themselves through university, or paying towards their first home will depend on the amount of money which will need to be invested as well as the type of investments most likely to see the gains required.
If in doubt a cash ISA is usually best, but if you understand the risks, and you would like to see more control over where your money is invested, and want to take advantage of the opportunity to maximise that investment than a stocks and shares Junior ISA may well be an exciting alternative to consider.
SHARE
