Setting money aside for your child is one of the most effective ways to secure their financial future, whether for university fees, a first home deposit, or other significant life events.
There are several ways to save, but choosing a tax-efficient method ensures more of your money goes towards their goals.
For many parents, investing in a Junior stocks and shares ISA is a popular route, but it’s just one of several excellent ways to build a nest egg for your child’s future, each with its own benefits.
Starting early and contributing even small, regular amounts can make a big difference over time thanks to the power of compounding.
How Much and When Should You Start Saving?
There’s no “perfect” amount to put aside each month — what matters most is building a consistent habit.
Even £25–£50 a month, started when your child is young, can grow into a meaningful sum by the time they reach adulthood.
If money is tight, you might begin with a small contribution and increase it whenever your circumstances improve, such as after a pay rise or when other expenses fall away.
It can also help to link saving to key dates. For example, you could top up their account on birthdays, at Christmas, or when they receive cash gifts from relatives.
Many providers allow you to set up a direct debit or standing order so contributions happen automatically, making it easier to stay on track without having to think about it every month.
Understanding the Junior ISA (JISA)
A Junior Individual Savings Account (JISA) is a long-term, tax-free savings account specifically for children under 18.
It must be opened by a parent or legal guardian, but after that, anyone — including grandparents or family friends — can contribute.
The current annual allowance for a JISA is £9,000. The money is locked away until the child turns 18, at which point it becomes their property to manage and use as they wish.
At that point, the account usually converts into an adult ISA, allowing the money to remain sheltered from tax if they decide to keep it invested.
Cash JISA vs Stocks and Shares JISA
There are two main types of JISA to consider. A Cash JISA works like a standard savings account, earning a variable rate of tax-free interest.
It is very low-risk, as the capital you put in is secure and won’t rise and fall with the markets. A Stocks and Shares JISA, on the other hand, invests your money in the stock market.
This offers the potential for much greater long-term growth, which can help your child’s savings beat inflation over time.
However, it comes with investment risk, meaning the value can go down as well as up, and your child could get back less than was invested.
Many parents choose a stocks and shares option when children are young, then gradually move into cash as age 18 approaches.
Premium Bonds for Children
An alternative tax-free option is to purchase Premium Bonds from NS&I on behalf of a child.
Instead of earning interest, every £1 bond is entered into a monthly prize draw with the chance to win tax-free cash prizes ranging from £25 to £1 million.
While there’s no guarantee of winning, the money is 100% secure as NS&I is backed by HM Treasury.
This can be a fun way to save, and you can invest anywhere from £25 up to £50,000 for your child.
Using Your Own ISA Allowance
Another strategy is to use your own adult ISA allowance to save for your child. The adult ISA allowance is significantly higher at £20,000 per year.
The main advantage of this approach is flexibility; you retain full control over the money and can withdraw it at any time, which isn’t possible with a JISA.
This can be useful if you want the option to redirect the funds, for example if your child decides not to go to university and you’d prefer to help with a house deposit instead.
However, this method uses up your personal tax-free allowance, and there’s a risk you might be tempted to dip into the funds for other purposes.
The money also legally remains yours and doesn’t automatically transfer to your child.
A Child’s Pension (SIPP)
For those taking a very long-term view, opening a Self-Invested Personal Pension (SIPP) for a child is a powerful way to start their retirement savings early.
The government provides tax relief on contributions, which is a significant boost. For example, to contribute £3,600 in a year, you only need to pay in £2,880.
This long-term investment for your child benefits from decades of potential growth.
The major drawback is that the money is locked away until they reach pension age, which is currently 57 (rising from 55 in April 2028), so it cannot be used for earlier life goals.
For that reason, a child’s pension is often best seen as a complement to other forms of saving, rather than the first priority.
Understanding the Tax Rules for Children’s Savings
Tax efficiency is one of the main reasons to choose certain savings vehicles over others. Here is what you need to know about how tax applies to children’s savings:
Children Have Their Own Tax Allowances
Children are entitled to the same personal allowance as adults (£12,570 for 2025/26). This means they can earn up to this amount in income without paying any tax.
Most children will never come close to this threshold from savings interest alone.
Additionally, children can benefit from:
- Starting rate for savings: Up to £5,000 of savings interest can be tax-free if the child has little or no other income
- Personal Savings Allowance: Basic rate taxpayers can earn £1,000 in savings interest tax-free; higher rate taxpayers can earn £500
The Parental Settlement Rule (Important)
There is one crucial tax rule that catches many parents out. If a parent provides money to their child and the interest earned exceeds £100 per year, the entire interest amount is taxed as the parent’s income, not the child’s.
This rule exists to prevent parents from shifting income to their children to avoid tax. It applies to regular savings accounts, but critically it does not apply to:
- Junior ISAs: All interest and growth is tax-free regardless of who contributed
- Premium Bonds: Prizes are always tax-free
- Child pensions: Growth is tax-free within the pension wrapper
- Gifts from grandparents or other relatives: The £100 rule only applies to parental gifts
This is one of the key reasons why a Junior ISA is often more tax-efficient than a standard children’s savings account, even if the headline interest rate is lower.
Choosing the Right Path for Your Child
Deciding on the best way to save depends on your goals and attitude to risk. A Junior ISA is often the most direct and popular method for building a tax-free fund for when your child becomes an adult.
Premium Bonds offer a secure, tax-free alternative with an element of chance. Using your own ISA provides flexibility, while a child’s pension offers a huge head start on retirement planning.
In practice, many families choose a mix of these options so they can balance flexibility, security and long-term growth.
Reviewing your choices every year can help keep plans on track. By starting early and choosing the right account, you can give your child a valuable financial foundation for their future.
If you’re not sure which mix is right for you, consider taking independent financial advice tailored to your circumstances.
Child Trust Funds: What If Your Child Has One?
Children born between 1 September 2002 and 2 January 2011 may have a Child Trust Fund (CTF) that was automatically opened by the government.
If your child has a CTF, you cannot open a Junior ISA for them unless you first transfer the CTF into a JISA.
The good news is that transferring a CTF to a JISA does not use up the £9,000 annual allowance.
This means you could transfer the CTF and then add a further £9,000 in the same tax year, potentially putting up to £18,000 into tax-efficient savings.
According to HMRC (early 2026), more than 758,000 young people aged 18 to 23 have matured CTF accounts that remain unclaimed.
The average value is approximately £2,242, meaning there could be a significant sum waiting for your child.
If you have lost track of a Child Trust Fund, you can use HMRC’s online tracing tool to find it.
Saving for Your Child FAQs
What is the Junior ISA allowance for 2025/26?
The Junior ISA allowance for the 2025/26 tax year is £9,000 per child. This limit applies across both Cash and Stocks and Shares JISAs combined. The allowance resets on 6 April each year and any unused allowance cannot be carried forward.
Can grandparents contribute to a Junior ISA?
Yes. While only a parent or legal guardian can open a Junior ISA, once the account is open, anyone can contribute, including grandparents, other relatives, and family friends. Contributions from grandparents are not subject to the parental settlement rule, making them particularly tax-efficient.
What happens to a Junior ISA when my child turns 18?
When your child turns 18, the Junior ISA automatically converts into an adult ISA. The child gains full control of the account and can withdraw the money, continue saving, or transfer to a different provider. The money remains theirs to use as they wish, which is an important consideration when deciding how much to save.
Can I withdraw money from my child’s Junior ISA?
No. Money in a Junior ISA is locked away until the child turns 18. Neither the parent nor the child can access the funds before this date, except in exceptional circumstances such as terminal illness (which requires HMRC approval). This is a key difference from regular children’s savings accounts.
Is a child’s pension worth it?
A child’s pension can be worthwhile as part of a broader savings strategy. The 20% government tax relief means every £80 you contribute becomes £100 in the pension. However, the money is locked away until at least age 57, so it cannot help with university fees or a house deposit. Many families use a Junior ISA for nearer-term goals and add a small pension contribution for the very long term.
Do I pay tax on my child’s savings interest?
It depends on the account type and who provided the money. Interest in a Junior ISA is always tax-free. For regular savings accounts, if a parent provided the money and interest exceeds £100 per year, it is taxed as the parent’s income. Gifts from grandparents or other relatives are taxed as the child’s income, but most children earn too little to pay any tax.
