Six million children who missed out on child trust funds (CTF) because they were born before the scheme was launched or after it was scrapped will be able to invest in a tax-free Junior Isa from 1 November 2011.

The government is set to confirm that the scheme will have a maximum annual allowance of £3,000, which can be invested in stocks and shares or in a cash deposit. But unlike the adult version any money invested will be locked in until the child is 18. 

Junior Isa will be sold by high street banks, building societies, investment companies and friendly societies already selling Isas. The government expects 800,000 children a year to benefit from Junior Isas, on top of those already eligible, including children in care.

Optimistically, the government says that if parents contribute the maximum amount each year a child could see resulting funds of up to £80,000 – a 48% growth rate.

CTF holders will not be allowed to apply for a Junior Isa, but the CTF investment limits will be increased to £3,000 a year from the current £1,200 to make sure holders do not miss out. All children born between 1 September 2002 and 3 January this year automatically received a CTF voucher for £250 or £500 (for those from low income families) at birth, and again on their seventh birthday.

John Reeve, chief executive of Family Investments, a friendly society with more than a million CTFs under management, welcomed the development: “The Junior Isa will be a welcome tool to help families save towards university fees.”

Our view is that although it makes sense to save for your children’s future needs the fact that they can fully access the money at 18 is a concern.

Unless you are fully using your own ISA allowances annually we believe these new ISA’s should not be utilised.

 As always good independent fee based financial advice is essential.