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The best tax-free savings accounts for children

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Robert Powell takes a look at the best Junior ISAs currently on the market.


Junior ISAs went off with something of a bang last November, yet have remained fairly silent since. Then again, anything with the acronym JISA was never destined to spawn huge headlines – even with the much-coined hook JISA, JISA baby.

So what exactly is a JISA?

What are they?

JISAs are under-18s savings accounts that pay out interest free of income tax. Like regular ISAs, they come in cash and stocks and shares varieties. Up to £3,600 can be invested on behalf of a child across both ISA forms each tax year. Only one cash and one stocks and shares ISA can be held at any one time.

JISAs replaced the scrapped Child Trust Fund (CTF) scheme, which closed to new applicants last year. Anyone who already holds a CTF will not be able to get a JISA but will be able to invest the full £3,600 a year into their trust fund instead.

Unlike CTFs, no Government contribution is made into a JISA.

JISAs run until the child turns 18, at which point the account becomes a regular ISA.

The best Cash JISAs

When I looked at JISAs in a video report back in October, the stocks and shares range was widening while the cash options were somewhat sparse.

Thankfully the range of available cash ISAs has picked up since then, so it’s these accounts I’m going to focus on today.

If you’re after more information on the pros and cons of Stocks and Shares JISAs take a look at my video report on the topic.

So, here are the best cash accounts around at the moment:

Provider

Interest rate (AER)

Minimum deposit

Transfers in allowed?

Transfer out notice period

Withdrawal term/notice period

Access

Skipton BS JISA

3.00% variable

£1

Yes

No notice

Until child turns 18

Branch, post

Bank of Cyprus JISA

3.00% fixed (3.50% existing customers) 2.75% variable (3.00% existing customers)

£25 (for initial deposit)

Yes

Written instruction prior to the fixed term ending (or 95 days’ interest fee) on fixed. 95 days' notice on variable.

Until child turns 18

Online, phone, post, branch

Nationwide Smart JISA (only available to under 16s who do not have a CTF)

3.00% variable (reverts to 2.10% variable on 31.10.13)

£1

No

No notice

Until child turns 18

Online, branch, post

National Counties BS JISA

1.81%: £1-£999

2.26%: £1,000-£2,999

3.01%: £3,000+

£1

Yes

45 days’ notice

Nothing until child turns 18

Telephone, post, branch

Nationwide’s JISA

Nationwide was the first major high street bank to reveal a cash JISA. And strangely, it’s still the only major high street bank offering this new form of account. Nationwide’s deal is priced up at 3.00% with a bonus lasting until the end of October 2013, at which point the rate reverts to 2.10%. You’ll have to be under 16 years of age to be eligible for this account.

Unfortunately this Nationwide JISA does not allow transfers in from other accounts. This means that if you already have an existing JISA you won’t be able to get hold of this deal. However the account does allow transfers out (as do all the deals listed above), so you can shift your balance into a new JISA if you so desire - a course of action you may wish to utilise when Nationwide’s 0.90% bonus drops off next year.

Better alternatives

Despite being the only big name in my table, Nationwide’s account isn’t actually the best deal. No, there are a few other accounts that offer a straight 3.00% interest with no bonus. Among them is the Bank of Cyprus with a 3.00% rate fixed for 12 months. However this provider’s JISAs are somewhat varied and complicated – and hence I’ll go into more detail about them a bit later.

Skipton’s JISA also offers a straight 3.00% interest rate, although this is variable so it could (and probably will) change over the next year or two. Transfers are allowed into this account, as well as transfers out.

The JISA from National Counties BS is the only other competitive deal, although to get hold of a 3.00% rate here you’ll have to deposit £3,000 or more.

Bank of Cyprus JISAs

As I mentioned earlier, the JISA offering from the Bank of Cyprus is slightly more complex than the other set of accounts. The deal comes in six versions (bear with me!): a fixed rate account, variable rate account and a combination of the two. In turn, each of these accounts have a loyalty version for existing customers who opened a Bond, Cash ISA or other account on or before 31 October 2011 as well as a new customer version.

The fixed JISA has a set rate of 3.00% (3.50% for existing customers) for one year. After this period you are able to transfer the cash out to another provider, fix again at the prevailing rate or shift the balance to a variable account. If you wish to make a transfer out before the fixed term comes to an end, a fee of 95 days’ interest will be deducted.

The variable JISA has an interest rate of just 2.75% (3.00% for existing customers). But with this account a transfer out can be made with 95 days’ notice.

The combination JISA allows you to fix part of your balance for a year at 2.90% (3.40% for existing customers) while keeping the rest in an access account with a variable rate of 2.75% (3.00% for existing customers). The variable part of this balance can be transferred out with 95 days' notice. Written instruction before the year-long term ends is needed to transfer out the fixed balance.

You can make transfers in with all of the accounts, the minimum initial deposit is £25 and additional deposits are allowed to the variable accounts only (with no minimum).

Fairly dense, I know – so to help simplify these JISAs I’ve put together a table below running down all of the interest rates and notice periods.

Provider

Interest rate (AER)

Minimum deposit

Transfers in allowed?

Transfer out notice period

Withdrawal term/notice period

Access

Bank of Cyprus fixed JISA

3.00% (3.50% for existing customers) fixed for 12 months

£25 (for initial deposit)

Yes

Written instruction prior to the fixed term ending (or a 95 days’ interest fee)

Until child turns 18

Online, phone, post, branch

Bank of Cyprus variable JISA

2.75% (3.00% for existing customers) variable

£25 (for initial deposit)

Yes

95 days' notice

Until child turns 18

Online, phone, post, branch

Bank of Cyprus fixed/variable combinations JISA

2.75% variable, 2.90% fixed. (3.00% variable, 3.40% fixed for existing customers)

£25 (for initial deposit)

Yes

Written instruction prior to the fixed term ending (or a 95 days’ interest fee) on fixed. 95 days' notice on variable.

Until child turns 18

Online, phone, post, branch

So, what happens when the account – and your child for that matter – matures?

Maturity

On paper, until the child reaches 16, the JISA is officially held by the adult on behalf of the youngster. At this age the child gains control of the account. However at 16 they are also eligible to open up a regular ISA in addition to the JISA. This means that the regular cash ISA limit of £5,640 (for 2012/13) can be used in addition to the JISA limit giving a total tax-free savings limit of £9,240.

Take a look at our ISA comparison centre for a rundown of the best regular tax-free savings accounts currently on offer.

Your experiences so far

Have you – or your child – got a JISA?

If so, let us know your experiences using the comment box below.

More: Compare ISAs with lovemoney.com | Today’s question: should the Cash ISA limit be increased? | Which ISA is the best for your cash?

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