Junior ISAs are a roaring flop
How many babies do you think are born in the UK in a year? The latest available figures from the Office for National Statistics show that 723,165 children were born in 2010. This suggests that, since the birth cut-off date for Junior ISAs of 2 January 2011, over 1.145m children have been born who could have taken out a Junior ISA. And that’s not even counting those born before 1 September 2002 who are still aged under 16 and therefore also eligible to open one.
So given all these lovely babies and children, how many Junior ISAs had been opened by 27 July 2012? Only 72,000. A little over 6% of the eligible babies alone.
So why are Junior ISAs so overlooked? Brought in to replace the Child Trust Fund, where every child born between September 2002 and January 2011 was given £250 from the Government to invest in a protected account to which parents, grandparents and friends could also contribute, the problem with Junior ISAs is that they are a bit pointless.
Although children under 18 (you can take out a Junior ISA until aged 16, but it cannot be withdrawn until age 18 where is may be transferred to an adult ISA) are taxable people, most seven year olds do not have a job that earns enough to take them over the current £8,105 personal allowance threshold. Similarly, most of the nine year olds I know do not have large enough investment portfolios to warrant them needing to use their capital gains exempt amount of over £10,000 a year. As a result, the tax-free status of a Junior ISA is not a great incentive for their use. In fact, it is only likely to be the wealthy, whose children may indeed have (for example) trust income of over £8,000, who are likely to worry about their children’s tax bills.
So Junior ISAs must have stonkingly good rates to attract investors then? Um, no. According to Moneyfacts.co.uk, the best rate currently available for a Junior ISA is 3.25%. Compare this with the Halifax Children’s Regular Saver (starting at £10 a month) at 6%, the West Brom’s regular saver at 4.6% and the Clydesdale’s 5 year bond at 4.05%, where you can get at your money in a maximum of 5 years (as opposed to 18 years).It’s no wonder that Junior ISAs are so glaringly unpopular.
As a basic rate taxpayer, you’d even be better off investing your money in a five year bond at 4.5% and paying the tax than using a Junior ISA.
So, given all the above, if you are one of the 72,000 people who have invested in a Junior ISA, please tell us why in the comments below. We’d really like to know.