The
Junior ISA will enable parents to save up to £3,600 a year tax-free for their children - higher than the previously announced £3,000 limit.
The accounts are being introduced to fill the hole left by Child Trust Funds (CTFs), which were phased out earlier this year, although those with existing CTF accounts can continue to make contributions up to £3,600 a year.
Children will be able to hold up to one cash and one stocks and shares Junior ISA at a time. The government will not make any contributions into the account on the child's behalf.
Who is eligible for Junior ISAs?
Any child born on or after 3 January 2011 and children born before 1 September 2002 are eligible for Junior ISA. Any child who already has a Child Trust Fund does not qualify for the accounts.
Can I transfer accounts?
Yes - you can transfer a Junior ISA's between cash and stocks and shares and between providers but it will not be possible to hold more than one cash or stocks and shares Junior ISA at any time.
You won't, however, be able to transfer CTFs into Junior ISAs, or vice versa, although the government is considering whether CTFs and Junior ISAs should be "more closely aligned".
Kevin Mountford, head of banking at moneysupermarket.com said: "It's great to see the government incentivising people to save for their children's future, and anything that educates consumers at an early age can only be seen as a good thing. However, it is disappointing to see that any child who currently holds a CTF will not qualify for these new accounts.
"With the lack of focus on CTFs, the danger is children with these accounts will languish on poor deals, while those with Junior ISAs will benefit from competition in the market.
The ability to transfer funds from CTF accounts to a Junior ISA would have been welcomed, or at the least, the ability to open a Junior ISA in addition to a CTF, though it is encouraging to see that the government will consider this in the future."
When can my child access their savings?
As with child trust funds, children won't be able to get their hands on cash held in a Junior ISA until they reach the age of 18.
Until the child reaches 16, accounts will be managed on their behalf by a person with parental responsibility for that child. At age 16, the child can assume responsibility for their own account if they want to, and when they reach the age of 18, the ISA will by default become an adult one.
How much could the accounts be worth when they mature?
JP Morgan Fleming has calculated that if a parent invested the full allowance of £3,600 each year in stocks and shares, they could accumulate savings of over £100,000 by the time their child reached 18, based on growth of 5% a year.
However, bear in mind that the amount your child ends up with will depend on a variety of factors, including inflation, investment returns and how much you contribute.
Where are the best instant access accounts for children once I've used my Junior ISA or CTF allowance?
There are several competitive easy access savings accounts available for children. These include the
Northern Rock Little Rock Instant Access account, which pays
3.00% annual interest a year and can be opened with a minimum investment of £1, and the
Chelsea Ready Steady save account, which pays
2.00% again on a minimum investment of £1.
Another higher interest option, but which does not allow withdrawals, is the Halifax Children's Regular Saver account. You have to pay in between £10 and £100 per month by standing order for 12 months and the account pays 6.00% interest fixed for a year.
Similarly, West Bromwich Building Society Regular Saver account pays a fixed rate of 4.60% for a year and you must pay in £10 to £100 per month for at least 10 out of 12 months. Again, no withdrawals are allowed.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
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