The Junior ISA is set to be introduced by the government in November this year as a replacement for the Child Trust Fund, which was abolished at the end of 2010.
The Junior ISA will allow parents and grandparents to save for their children in a tax-free scheme, keeping the money locked away until the child reaches the age of 18.
The Child Trust Fund was originally designed to encourage parents to save for their children’s future, with the government making a contribution in the form of vouchers to encourage further investments. Unfortunately, research has shown that of the 5,600,000 Child Trust funds that were set up, only 1,000,000 were ever added to, with an average of only an extra £24 per account.
Though each of those parents were sent a government voucher – with the majority of them worth £250 – a fifth failed to take initiative themselves, and had to have their voucher invested by HM Revenue & Customs on their behalf.
The Junior ISA will not have any government contributions, but will allow contributions of up to £3,000 a year, which is substantially more than the £1,200 allowed by the Child Trust fund.