Nationwide scraps tax-efficient Junior Isa and replaces it with savings account

Nationwide has scrapped its Junior Isa (Jisa) in favour of a more flexible account which it says gives parents greater control of their child’s money.

The Future Saver account has an interest rate of 3.5% for parents with a current account at the society, while those who don’t hold one will receive a rate of 2.5%.

• Jeff Prestridge: investing in your children’s future

It replaces the Nationwide Smart Junior Isa and three other savings accounts, which were withdrawn on 19 September.

Nationwide says the decision to scrap the Jisa came after feedback from parents who said they wanted more flexibility to access to their child’s money. Withdrawal from a Jisa is not allowed until the child is 18, whereupon they get control of the money.

The new account is written in trust for the child, so parents can decide when they want to hand over the money. They also have the flexibility to access the money whenever they want.

Parents can save up to £5,000 per year, higher than the Jisa cash limit of £4,260. The drawback however is that this annual savings limit is not tax efficient, unlike in a Jisa. 

The account allows one withdrawal per year with no impact on rate. If more than one withdrawal is made during the account year, the account will pay 0.50% until the anniversary of account opening, at which point it will revert to the higher rate.

• Should you start a pension for your kids?

The account can be opened in-branch, with existing members also able to open the account online.

Tom Riley, Nationwide director of savings, says: “Many parents start to save for their child’s future as soon as their child is born. They have aspirations and dreams for their child right from the start and want to do all they can to put them on the right path for when they start their adult life."

He adds: “The account also allows parents to educate their children on why getting into the savings habit is an important life skill. Putting away a few pounds of pocket money or cash presents from family and friends on birthdays and Christmas can soon help the total build up." 

• 'Bank of Mum and Dad' wants tax incentives to help children

Moneywise asked Nationwide why it has decided to no longer offer tax-efficient Jisas. While it did not say why specifically, a spokesperson responded that the building society believed with a Personal Savings Allowance (PSA) of £1,000, most would not have to pay tax on money saved into its new product.

The spokesperson comments:"HMRC do not allow tax-free instant access children’s savings accounts other than Jisa. However with PSA very few people will pay tax on their Future Saver."

Top Junior Isas

If you're looking to put some cash aside for your kids, Junior Isas are a great way of doing so. These accounts are available to anyone under 18 and tend to offer much higher rates than adult accounts, but there are some restrictions. 

Like the adult accounts, everything you earn in a Jisa is tax-free. This means you won’t pay any tax on your interest and you won’t be liable for any tax on capital gains or dividends if you choose to invest.

Jisas can be opened by parents with children aged under 16 and then by children themselves when they are aged 16 and 17.

In the 2018-19 tax year you can save or invest up to £4,260 in a Jisa. You can save for your child either in a cash Jisa, a Stocks and Shares Jisa, or a combination of the two.

Moneywise has rounded up the top Junior Isa accounts on the market. Read our guide for more.