The Individual Savings Account for Children – The Child ISA

If you are an adult, then you probably know that one of the most tax efficient ways to save money for future use is going to be the individual savings account or ISA. This is a type of savings account that has been around for a very long time for adults and this entitles you to tax-free interest on any money you store in the accounts. There is a second benefit from this type of account as it will often have a more favourable interest rate than a regular savings account.

This is something that people over 18 have been able to take advantage of for a long time, however, a Child ISA is not something that has been possible until recently. In 2011 the government introduced the option for those who are under 18 to have an individual savings account opened in their name and it is officially called the Junior ISA. This is a Child ISA which can be opened by a parent or legal guardian and allows you to pay up to £3600 into the account every year.

As well as having significant tax benefits and higher interest rates, having this sort of account can encourage financial responsibility in your child from a young age. Until they are 18 years old they are not allowed to access any of the money in the account, but on their 18th birthday it becomes theirs to use at their discretion.

Before your child reaches 18 you should make sure that you teach them financial responsibility and the benefits of the child ISA. This will mean that they spend the money in a responsible fashion, and perhaps even decide to convert the child ISA into a regular ISA for adults.

Paying into a junior ISA is a very simple process and it can actually be done by anyone, not just the parents of the child who opened the account. This can mean that if grandparents or other family members want to contribute towards the child’s financial future then they are easily able to do so. Parents and others can also be assured that a child is not going to be up to access the money early and spend it in an irresponsible fashion while they are young.

There are significant benefits to having money put aside for your child when they turn 18. As well as having financial stability, becoming an adult can generally be an expensive process as there are potentially very large expenses that occur before they are earning money. One of the most notable is going to be university costs, which seem to only be getting more expensive as the years go by.

Recently tuition fees have been raised to £9000 a year, which can have a serious impact on your child's financial future. Having a Child ISA account with funds in it will ease the financial burden that university can present them with. Other potential uses of this money might be a house deposit, or even a wedding.