Junior ISA: Cash or Stocks and Shares?

Want to start saving for your child’s future? There may be no better way than to set up a junior ISA. These accounts are great at making money from savings, and might just get your kids started on the road to investment.

In this guide, I’ll be taking a look at whether a junior cash or junior stocks and shares ISA is best suited for you. What’s more, I’ll run through a few of the best junior ISA picks available to UK savers and investors right now. Looking for the best interest rates? Unsure whether savings accounts are right at all? Junior cash ISA or stocks and shares – where on Earth do you even start?

What is a Junior ISA?

A junior ISA account will let you put savings away for your children. They will lock away until they are 18 years old, and up to then, you will be able to benefit from saving cash without the added tax on top. 

The idea behind a junior ISA account is that your children can learn to save, and will only be able to withdraw money when they reach a certain age. They can actually take over the account when they are 16. When they reach 18, the idea is that they have a fantastic savings sum in place to rely on for years to come.

There are also two main types of junior ISA available – a junior cash ISA, and a junior stocks and shares ISA. Both can inspire financial growth for your children.

Junior Cash ISA

A junior cash ISA is the default option for many parents. Money you save into these accounts are available on a cash basis. Therefore, you put money in, and can take money out. It’s a low-risk choice for many people.

Rates will vary, however, so it is worth shopping around. Luckily, that’s where I can help – keep reading!

Junior Stocks and Shares ISA

A junior stocks and shares ISA (also known as a junior investment ISA) will, as you might imagine, allow you to invest in stocks. This means that instead of getting a flat rate of cash from interest rates back on withdrawal, the money you invest for your child will be invested in the stock market and can go up or down in value.

Some people see these options as risky as you might come away with less money than you actually put in (although over the long term that is unlikely). However, on the other side of things, there is unlimited potential. Can you imagine if you were able to invest in Netflix for your child only a few years ago? The returns would be astronomical!

Can You Have More Than One Junior ISA?

You’re legally allowed to own one junior cash ISA and one junior stocks and shares ISA. However, you can only open one of each annually. This runs along the tax year, from April to April.

If you want to swap providers as you go, you can – but you can’t go beyond the ‘one of each’ threshold.

How Much Can You Invest in a Junior ISA?

Based on current rates (tax year 20/21), you’ll be able to save up to £9,000 per year in a junior ISA account. This is the base junior ISA allowance regardless of the account type you open. However, be careful with allowances – make sure you fill them up as much as possible by the end of the tax year.

Do also keep in mind that the £9,000 threshold can split across a cash and a shares junior ISA if you wish. However, you can’t exceed this total across both combined.

Should I Open a Junior ISA For My Child?

There are plenty of great reasons to set up a junior ISA cash or stocks and shares option. For one thing, it’s a great way to set up your child for adulthood, meaning that they will likely have a good stock of money available to pay for a car, a house, or to start a career.

However, there is the risk that you will have no control over your child’s spending one they can withdraw their money. Just as legal responsibility for the child relinquishes, so does your control over their money. If they want to spend their money travelling the world, embellishing their wardrobe, or investing in a strange new startup, that’s entirely their choice!

Of course, the type of ISA you choose may also dictate whether or not it is a good idea for your situation.

Junior Cash ISA vs Junior Stocks and Shares ISA

When considering junior cash ISA or stocks and shares ISA options, there really are a  few pros and cons on both sides.

With a cash ISA, there is no risk. You save your money and benefit from an interest rate that builds on your cash until your child turns 18. However, in some cases, this does mean you get little more than the basic rate.

Stock and Shares ISAs will therefore appeal to you if you want to take a chance on making as much from your savings as possible. As with all investments, there is risk involved. The money you put into your junior investment ISA is at the mercy of the markets until your child turns 18. It could go up or down at any time!

Therefore, consider whether it is worth playing it safe, or taking risks. It’s your choice – though it might be worth spreading your £9,000 across both if you have the money available. Take the best of both worlds option if you can!

Best Junior Cash ISAs

Let’s take a look at a few of the best junior cash ISAs available to UK savers right now.

NS&I

NS&I takes the top spot when it comes to the best simple interest rates for any child trust fund available in cash. However, it’s only available online – though in the modern age, this is probably the best way to go. It’ll be easy enough for your child to withdraw from when they come of age.

Interest Rate: 3.25%

Access: Online

Minimum Deposit: £1

Tesco Bank

Tesco Bank offers an impressive interest rate as well as a low minimum deposit. It’s a recognised and trusted UK brand, and what’s more, you’ll be able to manage the account online and via phone.

Interest Rate: 2.75%

Access: Online or phone

Minimum Deposit: £1

Halifax

Halifax is likely to appeal to many as it’s a solid name in British banking. Their opening interest rate isn’t bad, either – and you’ll be able to manage the account either in the bank, or through your online service.

Interest Rate: 2.45%

Access: Online or branch

Minimum Deposit: £1

Best Junior Stocks and Shares ISAs

When looking at the best junior stocks and shares ISAs, we need to split things into beginner and experienced choices. Some are better suited to newbie savers, while others will work better for active investors and traders. Let’s break this down further.

Ready-Made Options – Great for Beginners and Passive Investors

If you or your child are complete novices to investing, don’t worry. A passive ISA service is likely to suit your needs the best. The following are great choices if you are worrying about risk, as they effectively choose the best stock options for you. They are also handy if you don’t have much time to filter through and manage everything yourself.

Nutmeg

I’ve extolled the virtues of Nutmeg in reviews and posts elsewhere here at PFF, and I genuinely think you’re going to get some of the best junior ISA rates from the robo advisor service. The rates are competitive, and there are three clear portfolio options to choose from. Nutmeg is very much a socially-responsible service, too, meaning you can prevent your money from going to specific companies.

Portfolio Options: 3 (Socially Responsible, Fully Managed and Fixed Allocation)

Fees: 0.75% below £100k, 0.35% over £100k (Socially Responsible and Fully Managed); 0.45% below £100k, 0.25% over £100k (Fixed Allocation). Fund costs vary from 0.17% to 0.32% on average, and are lower through Fixed Allocation.

Wealthify

Wealthify is a similar service which might appeal to those looking for fixed fees and a safe way to invest. It is a great passive service, and offers some interesting portfolio options which revolve around your knowledge and attitude to risk. Beyond this, it’s a pretty safe way to make sure you get more than your base money back for your child when they are old enough.

Portfolio Options: 5

Fees: Flat rate of 0.6% for the year, with no dealing charges

Vanguard

Vanguard offers an altogether different ISA proposal – there are blended funds available here, and you’ll need to pay in from £100. It’s a little bit of an ask for an automated service, but with very low annual fees, it may be worth looking into. In fact, it’s easily one of the most flexible and affordable passive services around.

Portfolio Options: 5

Fees: 0.15%, or up to £375, annually

Self-Invested Options – Great for Active Investors

The following options are great for those account owners who know a thing or two about investing already. The following account picks will let you build and manage your own portfolios, therefore meaning you have full insight over the risk involved, too.

Hargreaves Lansdown

Offering a staggering number of ETFs, HL offers a great choice for anyone who wants to take complete control over their investments on a junior ISA basis. It’s an award-winner, too, and you’ll benefit from a very low fee year on year. You can manage everything from an app, too.

Portfolio Options: Completely manageable with more than 3,000 funds

Fees: 0.45% annually

Interactive Investor

II is an active investment engine which I’ve looked at in fuller detail elsewhere. Its junior ISA offerings are very competitive, with thousands of funds and clear ways for you to manage and edit your portfolio for your child. However, what might set this choice back is the fees – they can be a little higher than you might expect.

Portfolio Options: More than 2,500 funds available

Fees: Available from £9.99 per month, with £7.99 for dealing

Conclusion

So – which is the best option to take – a junior cash ISA or stock and shares ISA services? As you can see, there’s a lot to consider. There is more potential in a stocks ISA, however, there is much lower risk when handling and saving cash.

The choice is yours – talk it over with your children if they are old enough to make a choice for themselves – as it’s their money, and their future! Set aside some money in any case to give them a great footing in life.