A stocks and shares ISA is an excellent way to start an investment portfolio and reap some fantastic returns. One way to take advantage of what this type of ISA has to offer is to invest for your kids. Why? Well, the sooner you start saving, the more the portfolio will grow. Therefore, opening a stocks and shares ISA on behalf of your children is a great way to set them up for the future.
[top_pitch]
Is there a stocks and shares ISA for kids?
If you want to open a stocks and shares ISA on behalf of your kids, your best option is to open a junior stocks and shares ISA. These savings accounts allow parents and guardians to build an investment portfolio for their children.
Junior stocks and shares ISAs are offered by a range of platforms. If you have an existing stocks and shares ISA, it may be worth inquiring about opening a junior account with your current broker.
You can open up a junior stocks and shares ISA for any child under the age of 16. However, it is worth noting that children can only have one of this type of ISA at a time. You can start investing in a junior stocks and shares ISA for your child from the moment they are born.
How does a junior stocks and shares ISA work?
Just like a regular stocks and shares ISA, a junior stocks and shares ISA allows you to build a portfolio of investments. You can choose between funds, stocks, shares and ready-made portfolios. However, it’s important to note that the annual ISA allowance for a junior stocks and shares ISA is £9,000, rather than the £20,000 limit for adults.
A junior stocks and shares ISA can earn profit and dividends from the stocks that you buy. Any money that is made will be tax-free and can be reinvested into the ISA to continue saving for your child’s future.
When your child turns 16, they will be able to take control of the account. However, they will not be able to withdraw any funds until they are 18 years old.
[top_pitch]
Are there other options to save for your kids’ future?
There are two types of junior ISA that you can invest in.
A junior Cash ISA works like a regular savings account. The money you put into the account grows through interest over time. However, you will not be charged tax on any interest that is earned.
With a junior stocks and shares ISA, you can build an investment portfolio for your child. As investment is involved, this type of ISA comes with a higher level of risk, but it can also give a better return on investment. Instead of earning money through interest, this type of ISA earns money through dividends and stock price increases.
It is possible to open both types of ISA for your child. However, the total annual ISA allowance of £9,000 will be split between them.
The best ISA for your family will depend on the level of risk that you are willing to take. A junior stocks and shares ISA is a great way to introduce your child into the world of investing and can produce excellent returns. In contrast, a junior cash ISA is a much safer option that offers a lower return.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The post Can I invest in a stocks and shares ISA for my kids? appeared first on The Motley Fool UK.
Is this little-known company the next ‘Monster’ IPO?
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Click here to see how you can get a copy of this report for yourself today
More reading
The top bargain shares I’d buy today
I’m forgetting gold and hunting fallen FTSE 100 shares to buy for early retirement
1 ‘must-have’ passive income ETF for 2022!
2 investment trusts I’d buy for passive income
Why I’d start investing now in the stock markets
