Finally! – a simple, straightforward attractive savings vehicle for children. The new JISA is the junior version of an ISA, with all the same tax breaks. Most of the large institutions which offer ISA investments will soon be offering JISAs too.
The annual investment limit will be £3,600 initially, as compared to £10,680 for a full ISA. There are a couple of key differences, notably that the funds in a JISA will not be accessible by the child until they reach the age of 18, except in special circumstances.
The JISA is a replacement for the rather clunky, quite complicated and mostly dull Child Trust Fund (CTF) arrangment which kicked off a little under a decade ago. Unfortunately it seems that children who qualify for CTFs won’t qualify for JISAs: the JISA is available to children born after January 2, 2011, or before September 1, 2002 who are aged under 18.
Perhaps the most exciting thing about JISAs is that parents and grandparents (or benevolent uncles and aunts for that matter) won’t need to understand a whole load of new rules or products. If you want your special little one to have a cash JISA you can have it, or if you want an investment JISA there are no particular restrictions on the funds choice, so you can go ahead and invest in your favourite unit trusts and other funds.
So, people who are already familiar with investing and funds, and perhaps already have an investment portfolio of their own will be able to make sensible decisions for the money they would like to invest for little Johnny or Jill. Or indeed they can just ask their independent financial adviser to advise on a suitable plan and combination of investments.
It looks like the high street banks and building societies will be gearing up for a sales offensive on JISAs. I would caution you not to be drawn in too quickly: before signing up based on a beautifully drawn and marketed pamphlet, please consider whether each investment you are looking at has any track record, and if so how it compares to its sector average. You see, it is frequently surprising to consumers to find out that the best sounding stuff actually has disappointing performance, coupled with high ongoing charges.
For example, an IFA can probably introduce you to equity tracker funds with annual charges less than 0.5% per annum. Alternatively, you might choose to invest in some sexier funds based on the economies of, say, Russia, China, India, Brazil or other emerging markets, or the Pacific rim including Australasia. You couldn’t access those markets with the boring old CTF!
Remember – a JISA is a tax wrapper, not a product. Make it into what you want it to be. And give a leg-up for that special little-un who may need help with a car, university fees or a house deposit one day. 🙂