Child Trust Funds are no longer available for newborn babies. Instead, you can save for your child’s future in a tax-efficient Junior ISA.
Junior ISAs are almost exactly like adult ISAs:
- your child can have a cash ISA, a Stocks & Shares ISA, or both
- any growth or interest isn’t taxed, either via income tax or capital gains tax
- there’s a limit to how much money you can put in each tax year
- from 6 April 2015 you can also transfer a Child Trust Fund account to Junior cash ISA
When your child turns 18 the Junior ISA turns into an adult ISA. This means your child can keep earning tax-free interest on their savings if they choose to leave them in the ISA.
Opening a Junior ISA doesn’t just allow you to save. Anyone can contribute, so it gives grandparents, godparents, relatives and friends a way to contribute to your child’s future.
Many parents and grandparents are very keen to save for their children, but it’s important to ask yourself if it’s the best use of your money.
You need to make sure your own finances are in good shape before you think about your children. If you’re in debt (other than your mortgage) then the best way to help your child is to clear that debt – otherwise you'll pay more in interest than you would earn in the savings account.
Make sure you're clear on your new budget before you start saving. Check your incomings and outgoings, make sure you have some money set aside for emergencies, and only go for a Junior ISA if you know you have the money to spare.