How to get a nicer ISA to boost your children's savings

Tax-free accounts for youngsters can provide wildly differing returns, so find a good deal

It's two years since junior ISAs (tax-free savings and investment accounts for children) were launched. It's fair to say they're not a runaway success as just under 300,000 have been taken out since launch, according to Government figures.

However, the millions of parents whose offspring have child trust funds (CTFs), the previous government's tax-free savings account for children, may be losing out. That's because rates on some CTFs have fallen while other providers with competitive rates on junior ISAs don't offer a child trust fund equivalent.

The rules say your child can only have a junior ISA or a child trust fund, not both, and you can pay up to £3,720 into either of them in the current tax year.

The Government is consulting on letting parents transfer CTFs into junior ISAs and, hopefully, George Osborne will give the go-ahead in the Autumn Statement next month. But at the moment it's not something you can do. So how can you maximise the return on your child's savings?

Junior ISAs – best rates

You can invest money for your child through a stocks and shares junior ISA, rather than save it, and you should do better over the longer term. However, investment returns aren't guaranteed and cash junior ISAs are still popular with parents.

You can easily get an account paying three per cent or more on a cash junior ISA, although the top payer, Halifax's junior ISA, pays double that at six per cent.

The catch is that you have to have at least £1 in an adult cash ISA with Halifax. If you don't, the rate drops to three per cent.

Coventry building society's junior ISA pays 3.25 per cent, while Nationwide pays 3.25 per cent until the end of January 2015, when the rate falls to 2.1 per cent.

Mansfield and Skipton building societies both pay a smidge over three per cent at 3.05 and 3.02 per cent respectively.

As with ordinary cash ISAs, you can transfer a junior cash ISA for a better rate although not all providers (Nationwide is one example) take transfers in.

Check your child trust fund rate

If you have an older child who has a child trust fund, the rate may well have fallen – possibly sharply.

But you can still get three per cent interest for the first year, then 2.3 per cent, from the Yorkshire building society. An alternative is Skipton building society, at 2.65 per cent. Both these accounts accept transfers in from existing CTFs.

Tax-free interest

Contrary to popular belief, you don't need to take out a junior ISA or child trust fund for your child to get interest paid tax-free. Like adults, all children have a personal allowance (currently £9,440), which means they can earn up to this level in income without paying tax.

So, unless your child is earning, they can have many thousands in the bank before they'd have to pay tax on the interest.

However, there is a limit on how much parents can pay into their child's account (designed to stop them turning their children into their own personal tax havens).

The rules say each parent cannot generate more than £100 a year in gross interest from the amount that they pay into their child's savings account(s).

Getting interest paid tax-free

If you want interest on your child's account to be paid without the tax taken off, you have to fill in a form called R85, which is available from banks and building societies.

If your child has already paid tax on interest, they can claim it back using a form called R40.

Taxable accounts to consider

Halifax offers a taxable account paying six per cent for one year, but it's a regular saver account and you can only pay in between £10 and £100 a month. Lloyds bank is next with its Young Saver account paying three per cent on balances up to £20,000.

Verdict

The signs are that the Government will change the current nonsensical rules that ban transfers from a child trust fund into a junior ISA.

If it doesn't, check the interest rate on your child's current CTF and transfer it to another CTF provider if you can get a better rate. And if your child has generous relatives and can save more than the junior ISA/CTF allowance, use a taxable account but get interest paid tax-free.

Savvywoman.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

PROMOTED VIDEO
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Software Development Manager

    £40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

    Ashdown Group: Product Manager - (Product Marketing, Financial Services)

    £30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

    Recruitment Genius: Compliance Assistant

    £13000 per annum: Recruitment Genius: This Pension Specialist was established ...

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Day In a Page

    Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

    Isis hostage crisis

    The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
    Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

    The runaway buccaneers and the ship full of gold

    Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

    Maverick artist Grayson Perry backs our campaign
    Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

    Assisted Dying Bill: 'I want control of my life'

    This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
    Move over, kale - cabbage is the new rising star

    Cabbage is king again

    Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
    11 best winter skin treats

    Give your moisturiser a helping hand: 11 best winter skin treats

    Get an extra boost of nourishment from one of these hard-working products
    Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

    Paul Scholes column

    The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
    Frank Warren column: No cigar, but pots of money: here come the Cubans

    Frank Warren's Ringside

    No cigar, but pots of money: here come the Cubans
    Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

    Isis stands strong as its numerous enemies fail to find a common plan to defeat it

    The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

    Virtual reality: Seeing is believing

    Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
    Homeless Veterans appeal: MP says Coalition ‘not doing enough’

    Homeless Veterans appeal

    MP says Coalition ‘not doing enough’ to help
    Larry David, Steve Coogan and other comedians share stories of depression in new documentary

    Comedians share stories of depression

    The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
    Has The Archers lost the plot with it's spicy storylines?

    Has The Archers lost the plot?

    A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
    English Heritage adds 14 post-war office buildings to its protected lists

    14 office buildings added to protected lists

    Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

    Scientists unearthed the cranial fragments from Manot Cave in West Galilee