The Government will not allow parents whose kids have a Child Trust Fund (CTF) to convert it into a junior Isa, which could leave them languishing on paltry rates.
Despite the Treasury stating in November that "there is the possibility to explore the issue of converting CTFs to junior Isas in the future" Financial Secretary to the Treasury Mark Hoban now says his department has no current plans to do so.
He claims the CTF market is still "vibrant" and that as £3.6 billion of the £4.34 billion in CTFs is in investment rather than cash accounts, and is therefore dependent on the underlying investment, converting them to a junior Isa makes little difference.
Nevertheless, there are still one million cash CTFs which together hold £740 million.
Numerous commentators fear many providers will reserve their best deals for junior Isas as it is the more active market having launched last November. What's more, many providers no longer offer CTFs.
The top junior Isa cash account currently pays 3.25% whereas the top child trust fund cash account pays 3%.
Government says 'no'
Hoban says: "We have no plans at present to allow transfers between CTFs and junior Isas.
"Rates of interest on cash only form one aspect. We believe the number and value of CTF cash accounts is sufficient to sustain a large and vibrant market.
"CTFs and junior Isas are long-term investments and the performance will be dependent on the investment choices. There is no reason why CTF investments should perform any worse than junior Isas."
Dan Plant, MoneySavingExpert.com money analyst, says: "It’s disappointing to see the Government continuing to ignore millions of families who used the much-heralded CTF scheme.
"We have a huge fear banks will now sweep these unfashionable accounts under the carpet and slam rates down to pointless levels.
"A simple fix of moving everyone with a CTF into a junior ISA would mean all parents can save for their kids future on a level playing field."
What is a CTF?
CTFs and junior Isas are similar products in that a cash version of either is tax-free, while investments are tax-efficient.
Only children born on or after 3 January 2011 or before September 2002 are eligible for a junior Isa. Those born between 1 September 2002 and 2 January 2011 can open a CTF.
At present, while kids can move account within each system they cannot move from a CTF to a junior Isa or vice versa.