Mini cash ISAs

ISAs (Individual Savings Accounts) were introduced by the government in 1999 to replace PEPs and TESSAs. They represent one of the few tax-breaks available to savers who pay income tax. Although your child is unlikely to be a tax payer and cannot open their own ISA until they reach 16 years of age, they provide an additional savings vehicle for parents.

You can take out EITHER one maxi ISA, in which you can invest up to £7,000 all in stocks and shares or split between the three components with a maximum of £3,000 in cash and £1,000 in life insurance, OR up to three mini ISAs with up to £3,000 in one mini cash ISA, up to £3,000 in one mini shares ISA and up to £1,000 in a mini insurance ISA.

You cannot take out both a maxi ISA and a mini ISA in the same tax year, nor can you have two mini ISAs of the same type (such as two mini cash ISAs).

Mini cash ISAs provide combined benefits of tax exempt interest and instant access. Both parents can deposit up to £3,000 each tax year (ending 5 April) in a mini cash ISA on behalf of their child. But they will have to do this from their own ISA allowance. Once a child reaches 16, they can open their own ISA. Rates also tend to be more competitive than deposit accounts.