Junior Isa plans unveiled

An estimated six million under-18s will be eligible when the accounts launch on 1 November, with a further 800,000 eligible each following year (see the Full Isa guide).

Children will be able to save in a junior cash Isa where the interest is not taxed and a stocks and shares junior Isa where the returns are mostly tax-free.

The proposals state savers can have as much as they like in each account as long as the total saved or invested does not exceed £3,000 per tax year.

Junior Isas will, like standard Isas, be available from banks, building societies and investment firms.

Most children's savings are already tax-free given they are unlikely to earn (including wages and interest) above the £6,475 threshold before tax is taken or above the £100 a year interest permitted from money from a parent before tax is charged.

Who is eligible?

They will only be available to kids who were born in 2011 or later or before 1 September 2002.

Anyone born between those dates is eligible for a Child Trust Fund (CTF) that is also a tax-efficient vehicle.

The deposit limit for CTFs will be raised from £1,200 to £3,000 to bring them in line with junior Isas.

The Government used to add up to £500 at birth and again at the child's seventh birthday but these payments were scrapped last year as part of government cuts.

A concern is providers will save their best products for junior Isas, leaving those with a CTF languishing on poor rates.

What happens at adulthood?

Funds in a junior Isa will be untouchable until the child is 18, at which point they will convert into an adult Isa at 18 in the holder's name.

Another concern is this allows less responsible young people to blow that cash rather than keep it saved as a deposit for a home, to pay for university or something else to help their development.

The proposals also create an anomaly whereby someone between 16 and 18 can hold both a junior Isa and an adult cash Isa given standard cash Isas are available to those aged 16 and over.

Investment Isas are only available to those 18 and over.

Martin Lewis, MoneySavingExpert.com creator, says: "Sadly, the Government hasn't learned from the Child Trust Fund issue and on a kids' 18th birthday the money in the Isa becomes theirs to do with what they want.

"So you may've put money away for their college fund but they may see it as a Ferrari fund. "Or as one parent once said to me about CTFs, but still applies now: 'My baby is cute now, but what if they become a drug addict and when they're 18 want to use the cash to put it up their nose, not to pay for university?' There's nothing you can do to stop it."

The Government will consult on these proposals until May before announcing firm plans.

Further reading/key links

Top deals: Cash Isas, Isa Transfers, Full Isa GuideChild savings: Child Trust FundsOur view: Martin's Junior Isa blog