Junior ISAs one year on: many barriers remain

by Simon Ward on 01 November 2012  |  3 comments
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Take-up of Junior ISAs has been low in the first year, and there are several reasons why that might not change, even if our finances improve.

It’s now a year since Junior ISAs were launched to provide another tax-free savings option for children following the withdrawal of Child Trust Fund vouchers.

Yet they haven’t proved a huge hit, with only 72,000 accounts opened in the first five months, despite six million children being eligible.

Of course, the squeeze on household finances is the biggest reason for that lack of take-up. But I think there are several other factors too.

One is the lack of competition between providers. Following launch, the highest interest rate on a Junior Cash ISA was a miserly 3.01%. Halifax shook things up in February with a 6% rate, but that is conditional on a person with ‘parental responsibility’ holding a Halifax adult ISA. Other providers have responded, but the leading non-Halifax rate still only pays 3.25%. For the latest top rates, take a look at The best Junior ISAs.

Meanwhile, Junior stocks and shares ISAs have faced criticism for high fees and providers not offering rebates on management charges, despite doing this for adult ISAs.

There’s also the general lack of publicity surrounding them, with recent figures claiming over half of parents with children under 18 hadn’t heard of them.

Parental control

One more reason, which a lot of people don’t want to talk about, is control. Both Junior ISAs and their ill-fated predecessor, the Child Trust Fund, allow children to access all of their money at the age of 18.

Now while many children will use it pay for university fees (who knows how much they will be in 18 years’ time?) or buy a car or put down a deposit on a home, others won’t.

As a parent myself, it’s not pleasant to even think for a minute that you may have a very irresponsible and reckless son or daughter by the time they reach adulthood. But it could happen. And I think that’s another reason why people are staying away from Junior ISAs and putting their money into other savings and investing vehicles where they are in the driving seat.

More on saving for children

Top savings accounts for kids

Top tax havens for babies, children and teens

Why you shouldn’t save for your kids