Junior Isas: Best options for your children

However, if your child was one of the 5m born between 1 September 2002 and 3 January 2011 he or she will have a child trust fund (CTF) instead of a Junior Isa. You can top this up by the same amount. But you should also be seriously considering taking advantage of the new flexibility to transfer CTFs into Junior Isas from 6 April 2015.

Jason Hollands, managing director at Tilney Bestinvest, says: "CTFs have become 'zombie' products, with lack of competition and innovation between providers."

According to HM Revenue & Customs, 4.84m CTF accounts, representing almost 80 per cent of CTFs, are invested in stakeholder accounts. A feature of stakeholder accounts is a requirement that their charges are capped at 1.5 per cent a year.

Mr Hollands says: "The charging cap will undoubtedly have left some parents with the impression that this must represent value for money. Yet most stakeholder CTFs are invested in UK index-tracker funds and 1.5 per cent is actually a very high fee for such investment strategies.

"However, costs aside, the fundamental weakness of the CTF market is principally the lack of investment choice available compared with the Junior Isa market."

Sara Wilson, head of proposition at Alliance Trust Savings, says: "There are three key reasons to move to a Junior Isa from a CTF: CTFs don't tend to be administered online, they are predominantly cash with historically low interest rates, and they offer a limited investment choice."

However, Paul Taylor, managing director of chartered financial planning company McCarthy Taylor, says: "The range of Junior Isas is still very limited. Family Investments has been a strong player in this market, but may not be the most cost-competitive. DIY investors will no doubt be drawn towards online providers such as AJ Bell's YouInvest, which is quite a straightforward and cost-effective solution."

DIY investment platform Alliance Trust Savings has waived its Junior Isa charge of £10 a quarter throughout 2015. Other DIY Isa players that offer a wide range of investments for Junior Isas include Bestinvest, Hargreaves Lansdown and The ShareCentre.

Once you have chosen a Junior Isa provider, you then need to think about the investment choice. If you prefer to keep the money in cash, perhaps because your child will turn 18 within the next five years, then take a look at the best rates available in the table below. When they turn 18, your child's Junior Isa will automatically become an adult Isa wrapper.

Parents who have longer periods to invest and are willing to take higher risk with their child's savings should consider a portfolio of stocks and shares.

Mr Hollands says: "While the UK is without doubt a significant, international stock market, it is important to recognise that the UK accounts for around 10 per cent of global equity markets by size. By focusing a child's investments exclusively on UK-listed investments, you could be forgoing a lot of opportunities."

Mr Hollands recommends two investments that take a global investment approach:

■ Scottish Mortgage Investment Trust (SMT) invests in high-growth companies from China to the US and has a low ongoing charge of 0.5 per cent - lower than some index-tracker funds. The investment trust is a longstanding member of the IC's Top 100 Funds. On 4 March, SMT was trading at a small premium of 0.30 per cent to its underlying net asset value.

■ Artemis Strategic Assets fund (GB00B3VDD431) invests across a wide range of UK and international markets and asset classes. The fund aims to perform well when markets are favourable, and preserve capital when markets are poor. It therefore aims to provide longer-term positive returns under most market conditions, outperforming both cash and equities over rolling three-year periods.

Top cash rates on Junior Isas

Source: Moneyfacts.co.uk on 3 March 2015

Click here for more Isa investment ideas, including funds, investment trusts, shares and passives.