Key changes to the rules around savings are coming in soon
Martin Lewis has issued a caution for savers as you could be missing out on greater returns. The advice from the consumer champion comes as major changes to savings allowances are just around the corner.
During a recent question time edition of his BBC podcast, Mr Lewis was questioned by a man about whether he could open a junior ISA for his nieces and nephew. A key benefit of ISAs is that these accounts are completely tax-free. The financial specialist initially told the uncle that regrettably he wouldn’t be able to open the account himself, as a junior ISA can only be established by a parent or guardian on behalf of a young person. Mr Lewis said: “You as an uncle can’t do it, it generally has to be the person who has the guardianship or the parentship of the child, to be able to open their ISA, so you will have to do it through them.”
This should be your focus
Nevertheless, if you are creating a junior ISA to save up for your little one, Mr Lewis had a firm word of caution regarding which type of account to go for. He said: “I tend to almost always get questions about cash junior ISAs.
“I think junior ISAs are one of those areas where you really, really want to be always be focusing if you possibly can on investing.” Mr Lewis explained there is a straightforward reason why, given how the account operates.
He explained: “You’re generally locking money away for 18 years that cannot be accessed. The rule of investing is if you’re locking money away for more than five years – and if you’ve got emergency funds and you haven’t got any high debts, which hopefully children won’t – then you should look at investing over savings because on a balance of probabilities, it will outperform.”
You can deposit up to £9,000 annually into junior ISAs on behalf of a child for whom you have parental responsibility. This sum can be allocated as preferred between cash ISAs or stocks and shares ISAs.
A junior ISA is held in the child’s name, but whoever opened the account manages it. When the child turns 16, they can become the registered contact for the account, and upon reaching 18, the account converts to an adult ISA, allowing them to access the funds. Mr Lewis continued in explaining that money placed into a junior ISA is in the “sweet spot” as you are saving funds which you don’t require and the sum has a lengthy period to grow.
Change to ISA rules
Several significant changes are approaching for ISA allowances. Distinct from the junior ISA allowance, adults can presently save up to £20,000 annually into ISAs.
This can be divided as preferred between cash ISAs and stocks and shares accounts. From April 2027, this is set to change, with the maximum deposit into cash ISAs being capped at £12,000 each tax year.
The remaining £8,000 must be allocated towards investment-based accounts. People aged 65 and above will be exempt from these new regulations and will maintain the existing allowance.
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