Do Junior ISAs offer an attractive deal?

After the Government announced that the Child Trust Fund would be phased out, Junior ISAs were launched as an alternative means of investing for a child's future. From November 2011, parents were able to put cash into the accounts in order to provide a tax-free investment plan for their offspring.

Saving for the distant future

Junior ISAs allow parents to invest up to £3,600 in a tax year. This can be invested in a cash Junior ISA or a stocks and shares Junior ISA, or in a combination of the two.

Only children born after January 3 2011, or those born before September 2002 who do not have Child Trust Funds, are eligible for Junior ISA investments.

Junior ISAs look an attractive way of investing cash gifts from relations or godparents, but they are not necessarily the best investment on the market. Investors should scrutinise the interest rates offered by the banks and building societies that have launched Junior ISAs to get a picture of long-term returns.

Only your child will be able to access the money and only after their 18th birthday. Essentially this means you are investing in a very long term bond. It is quite likely that better returns can be obtained from long-term high interest bonds, without the Junior ISA restrictions. Check the rates on offer to see if this would prove a better investment.

Bear in mind that any form of children's savings are only taxed if they earn more than £100 in interest. The interest-free aspect of a Junior ISA becomes less significant when you consider this information.

Uncertain future

The attractions of Junior ISAs are difficult to estimate accurately, simply because nobody can foresee how interest rates or stock markets will fare over the next 18 years. Although making savings provision for children is a sensible idea, for now Junior ISAs do not have any conspicuous advantages over other long-term investment plans.

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