We all want to save as much as we can for the future of our kids, but it appears cash-strapped parents are turning down the chance to build a tax-free mini nest egg for their children with a Junior ISA.
Introduced in last year's budget, the Junior ISA (JISA) has failed to take off, with just 72,000 opened in the first five months of the scheme - barely 6% of the 1.2 million predicted to apply.
JISAs launched in November and replaced the Child Trust Fund (CTF) scheme, which was scrapped in 2010.
Money Mail figures reveal that nearly half a million CTFs were opened in the first three months alone - partly due to the fact that parents received a CTF cash voucher to kick-start the account.
The Government has so far refused to allow the 5.7 million children with CTFs to move their money in to JISAs.
The Junior ISA explained
You can open a JISA for your child as long as they did not qualify for the previous Child Trust Fund. So if your child was born before September 1, 2002 or after January 3, 2011 they are eligible.
A JISA is similar to an adult ISA in that it comes with generous tax breaks. As such there is no income tax on saving returns and no capital gains tax or tax on dividend income for those who choose the investment version.
They are designed to provide a lump sum when the child turns 18-years-old and then the account flips into an adult Isa.
You can choose between between a cash account, a stocks and shares version offering access to investments such as investment funds, gilts and bonds - or a combination of the two.
The maximum annual contribution is £3,600, which is payable in lump sums monthly.
What's good about them?
The main advantages of a JISA over traditional savings/investment accounts for children are:
- Proceeds are paid out completely free of tax
- Contributions are completely flexible, meaning you can pay in as much or as little as like, so long as you do not exceed the annual contribution limit
- The funds are locked up until age 18, thereby removing any temptation to access the funds.
Of course, there are other alternatives out there when it comes to child savings accounts so be sure to do your homework before making any commitment.