Junior ISA applications surge 300%

After a slow start JISAs are building momentum, but millions of children are still missing out.

There has been a 300% surge in the uptake of Junior Individual Savings Accounts (JISAs) over 2012/13 according to new figures from HMRC.

A total of 295,000 JISAs were opened in the scheme's first full tax year on the market.

The latest set of ISA sales information from the tax office shows that around £1,327 was invested in a Junior ISA on average and £392 million saved overall into these accounts over 2012/13.

The influx of subscriptions is a big turnaround for the scheme, which had a slow start and still blocks many from applying.

Frosty reception

Junior ISAS were launched in November 2011 as a tax-free vehicle parents could use to save for children under the age of 18.

Each tax year cash can be invested up to a fixed allowance. For 2013/14 it's £3,720.

Parents can choose to save the whole sum in a cash ISA, a stocks and shares ISA, or a combination of the two.

Six million children were eligible to open an account when the scheme launched, but only around 71,000 subscriptions were received in the first five months, with an average sum of £1,623 invested.

The low initial take-up has been attributed to a number of factors like parents not having enough money to put aside for kids and not wanting to lock-up cash for 18 years (money once invested in a JISA cannot be withdrawn until the child turns 18).

But one of the biggest barriers to the scheme was a bizarre rule excluding around six million children that have Child Trust Funds from signing up.

Biggest barrier to JISAs

For an estimated six million children, Child Trust Funds (CTFs) are currently the biggest barrier to opening a JISA.

Every child born between 1st September 2002 and 2nd January 2011 was given up to £250 to start a savings account called a Child Trust Fund. Those on lower incomes got an extra top-up of up to £250 per child and children who turned seven between the 1st of September 2009 and 31st of July 2010 received up to £250 more into their accounts.

The scheme was designed by the previous Labour Government to kick-start a positive savings culture. Parents had to open an account by choosing a CTF product, but if they didn’t the free money was automatically invested by the Government.

With up to £750 being given away to every eligible child, the scheme was costing millions of pounds to sustain and was eventually closed down in January 2011.

JISAs, which carried no cash incentives, replaced Child Trust Funds (CTFs) but carried a bizarre rule excluding children already part of the CTF scheme from joining in.

Only children born on or after 3rd January 2011, or before September 2002, are eligible for a JISA.

Those stuck with CTFs can continue to invest, but the concern is these accounts will become zombie accounts as providers start to focus on JISA products - leaving six million kids in limbo.

Hope for the excluded

The restriction on JISAs sparked a public outcry, forcing the Government to respond.

In May this year the Government launched a consultation into allowing the transfer of a CTF into a Junior ISA.

The consultation will look into whether the transfer should be allowed and how they could take place, but needs public input.

You can voice your opinion via the gov.uk page. The consultation closes on 6th August - so you haven't got long.

Top ten Cash JISAs

If your child is eligible for a Junior ISA here are the best rates around right now.

*6% rate only available if adult cash ISA is also taken out

The top-paying Junior ISA pays a whopping 6% and is from Halifax.

But you will need to open an adult ISA with Halifax in order to access this top rate. To see if its worth doing take a look at our regularly updated tables in  The best Cash ISAs.

If you have already got an adult ISA elsewhere the next best rate around is from Nationwide’s Smart Junior ISA which pays 3.25%.

Exceed expectations

Despite the 300% surge in new JISA subscriptions, the numbers of JISA accounts opened last year still only represents 5% of the eligible applicants.

HMRC says this figure is ‘in line with expectations’ but millions of children are missing out.

If you were to open the top paying Halifax account and deposit the maximum £3,720 allowance each year for 18 years, providing the rate remained at 6% throughout this time your child would have a tidy sum of over £125,000 waiting to be collected on their 18th birthday.

It's an enviable start in life that could help with going to university or buying a home.

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