Junior Isa tax-free savings allowance doubles to £9,000 for 2020/21 tax year

Young savers were handed a boost in the Budget, with the Government revealing the Junior Isa allowance will be more than doubled to £9,000 in April.

Currently parents or those aged under 16 can deposit £4,368 every year tax-free in the accounts, with both cash and stocks and shares options available, in a bid to encourage long-term saving.

Young savers who hold these Isas can access them when they turn 16, and at 18 they can withdraw the money, with the accounts becoming full cash or stocks and shares Isas, which have a higher allowance of £20,000.

Parents and guardians can open a Junior Isa, but the money belongs to the child.

Adrian Lowcock, head of personal investing at DIY investment platform Willis Owen, called the announcement ‘truly eye-catching’.

He said: ‘It also acts as a way to encourage savings for the next generation, helping to ingrain a vital long-term savings habit in our children.’

However, the Treasury announced the adult Isa allowance of £20,000 will remain the same, while the personal savings allowance, which enables basic rate taxpayers to earn £1,000 in interest a year tax-free. 

It means the only measure aimed at helping savers in the Budget was aimed at very young ones.

Junior Isas replaced Child Trust Funds in 2011, but those who still hold them from before they were phased out will also benefit from the 106 per cent increase in the Junior Isa allowance.

Some 907,000 Junior Isas were opened in the 2017-18 tax year, according to the latest figures from HMRC, more than three times the 296,000 opened in 2012.

The highest-paying cash Junior Isa is offered by Coventry Building Society, which pays 3.6 per cent, a mutual which has paid the best rate since the Isa was launched in 2012, in a bid to try and attract new customers as early as possible.

It previously revealed to This is Money that four in five Junior Isa savers stuck with the building society when they turned 18.

After Coventry, the best cash Junior Isa providers are Darlington Building Society, which pays 3.25 per cent interest, NS&I which pays the same rate, and Tesco Bank, which pays 3.15 per cent.

It remains to be seen if a higher allowance could hit rates, with more money potentially pouring in.  

Meanwhile stocks and shares versions are available from investment platforms AJ Bell, Hargreaves Lansdown, Nutmeg and Vanguard.

These allow parents to invest money tax-free for their children and hopefully have it grow over a long period of time.

But while children may come out of the Budget smiling, there was little help for savers battered by falling stock markets and a year of cuts to savings rates, who instead were greeted this morning by a pre-Budget announcement that the Bank of England would cut the base rate by half a percentage point to 0.25 per cent.

Anna Bowes, co-founder of website Savings Champion, called the news ‘devastating for savers who have lived with record low savings rates for over a decade.’