Just two months before the scheduled end of the Child Trust Fund in January 2011, the government announced the introduction of the Junior ISA, which was introduced on the 1st of November 2011.

The Junior ISA is designed to provide an opportunity to gradually accumulate cash over several years, in order to ensure young adults have the financial backing to head in whatever direction they desire. This could be anything, be it starting a business, attending university, buying a house or simply having a financial safety net.

What do we know about the new savings scheme?

1. Tax-free savings

As well as providing tax-free interest, the contributions into the ISA escape inheritance tax, thereby allowing parents and grandparents to pass all the money intended for the child down the generations.

2. No government contribution

Replacing CTFs, the Individual Savings Accounts (ISAs)bear many similarities, with the crucial difference being a lack of government contribution. The new Junior ISA follows the same logic as its forerunner, as both are intended as a method to allow cash to be saved on a child’s behalf in order to invest in his or her future.

3. Anyone can contribute

Anyone can put money into the child’s account, for example grandparents providing a small sum every month, or a family friend supplementing a birthday gift. Any individual who has an interest in providing that child with enough cash to make reaching their potential easier when they hit adulthood can contribute.

4. Money locked away until 18

Until the child reaches 16, the account is looked after by someone with parental responsibility for the child. After the child’s 16th birthday they become the owner of the account - however, the money cannot be removed until the child is 18, when the junior ISA automatically becomes a standard ISA. This ensures that by the time the child reaches 18, a healthy sum plus tax-free interest and dividends has accumulated.

5. Annual contribution cap of £3,000

In a slight change to the old Child Trust Funds, the contribution limit for the Junior ISA’s has been raised to £3,600 per annum, allowing a great deal more to accumulate over the course of the Junior ISA.

6. Backdated eligibility

In addition, eligibility for a Junior ISA is back-dated. This means those born just after the end of the CTF will not miss out – and that children born before September 2002 who were previously ineligible for a CTF will now be able to open a Junior ISA. Currently, any child under 18 who is a UK resident and does not have a Child Trust Fund is eligible for the Junior ISA. The government estimates that up to 6 million children are eligible for the Junior ISA, with 800,000 more eligible every year. There is of course nothing to stop a Junior ISA being set up from birth.

7. Offered by private providers

Junior ISAs will be offered by private providers, with the choice of investing into a cash-based account or a stocks and shares-based account. Many providers such as Jump have already decided to set up their own Junior ISA package, with many more in the process of consulting and developing in time for the 1st of November. With such competition for the reliable investments Junior ISAs provide, it will be up to individual parents to decide which combination of rates and perks suit their interests best.

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MyEggNest's Recommendations Alternatives to CTFs - Tax-Exempt Savings Plans Did you know there are alternatives to the CTF that offer the same tax-free savings? Tax-Exempt Savings Plans (TESPs) can help you build up a lump sum for your child through small, regular payments. Your fund grows free from any income or capital gains tax, and can be used to save for children of all ages. Click here for more information about TESPs, and specific plans offered by friendly societies.

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