Key changes to the rules around savings are coming in soon
Martin Lewis has issued a word of warning for savers, as you could be missing out on better returns. This advice from the consumer champion comes ahead of significant changes to savings allowances in the near future.
During a recent Q&A episode of his BBC podcast, Mr Lewis was asked by a fan of the show if he could open a junior ISA for his nieces and nephew. A primary benefit of ISAs is that these accounts are completely tax-free. The finance expert initially informed the uncle that unfortunately, he wouldn’t be able to open the account himself, as a junior ISA can only be opened by a parent or guardian on behalf of a child. He clarified: “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.”
However, if you’re considering opening a junior ISA, Mr Lewis had an important warning about which type of junior ISA to choose. 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’s a straightforward reason for this, given how the account operates.
‘It will outperform’
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.”
A person can contribute up to £9,000 annually into junior ISAs for a child they have parental responsibility for. This sum can be divided as preferred between cash ISAs or stocks and shares ISAs. A junior ISA is held in the child’s name, while the person who set up the account manages it.
When the child reaches 16, they can become the registered contact for the account, and upon turning 18, it converts to an adult ISA, allowing them to access the funds. Mr Lewis told the listener that money deposited into a junior ISA sits in the “sweet spot” as you’re setting aside funds you don’t require immediately, and it has a decent chunk of time to grow.
Changes to ISAs
Several important changes are approaching for ISA allowances. Separate from the junior ISA allowance, adults can presently save up to £20,000 annually into ISAs.
This can be allocated as you choose between cash ISAs and stocks and shares accounts. From April 2027, the rules are set to change, allowing only up to £12,000 each tax year to be deposited into cash ISAs.
The remaining £8,000 must be allocated for investment-based accounts. People aged 65 and over will be exempt from these new regulations and will maintain the current allowance.
