The rate on NS&I’s Junior ISA has increased from 2.50% to 3.25% annual equivalent rate (AER), while the Direct ISA now pays 0.90%, up from 0.75%.

NS&I’s Junior ISA is now the third highest interest rate on offer, behind Coventry Building Society which pays 3.60% and Danske Bank’s 3.45%.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “[NS&I] is deliberately focusing its rate-rising muscle here because it wants to attract more children to the business and help them build a savings habit.

“This is great news for parents looking for a home for a cash JISA. NS&I is a much-loved institution, and because funds are 100% guaranteed by the government, they know they can put their faith in it for their children’s savings.”

However, the Direct ISA increase could be viewed as disappointing.

Anna Bowes, co-founder of Savings Champion, said: “Savers with cash in the Direct ISA can do far better. The best easy access cash ISAs are currently paying up to 1.50% tax free AER.”

The best rate of 1.50% is with Santander but is only available to new and existing 123 World or Santander Select customers.

Virgin Money pays 1.45% on its Double Take E-ISA Issue 5, although as the name suggests only two withdrawals are allowed each year.

The best simple easy access cash ISA, available to anyone and without restricted access comes from OakNorth Bank. Its Easy Access Cash ISA is paying 1.44%.

“All of the above accept transfers in and by switching, savers could earn over £100 more in tax-free interest over 12 months, on a balance on £20,000,” Bowes added.