All children will receive a cash sum from the government on their seventh birthday, it has been announced.
The sum is in addition to the £250 that every newborn baby will receive as part of the government's Child Trust Fund.
The Treasury was announcing details of the scheme, which Chancellor Gordon Brown said in his last Budget he would launch.
Also newly announced on Tuesday was the fact that relatives will be able to chip in up to £1,200 a year between them.
As with an individual savings account (ISA), families will have the choice of putting the money in shares, bonds or cash, and growth on the investment will be tax-free.
Children of low-income families will receive £500 from the government while parents will not have to apply for the money because the fund will be linked to the Child Benefit system.
Families with a household income below the Child Tax Credit threshold, currently £13,230, will receive the additional £250.
The government estimates that about a third of children will receive this additional contribution.
Financial secretary Ruth Kelly said: "The Child Trust Fund will ensure that children will have assets of their own to help them get a better start to their adult life.
"It will also give young people experience of savings and investment opportunities and help them to manage their finances better in later life."
Children will get access to the money when they turn 18, and the Treasury said there would be no restrictions on how the money could be spent.
The £250 vouchers will start to be sent out in 2005, and children who were born from September 2002 will be eligible.
But the plans were met with opposition from both the Liberal Democrats and Conservatives.
Steve Webb, Liberal Democrat Shadow
Work and Pensions Secretary, said crucial details were missing from the government's proposals.
"The government's child trust fund is painfully thin on detail and its
benefit to children unclear."
David Willetts, Conservative Shadow Work and Pensions Secretary, said the plans would lead to additional means testing and their usefulness would be undermined by increased university costs.
"Today's proposal is a complex way of trying to encourage people to save. As always, Gordon Brown couldn't resist inventing a new means test alongside his policy. Many families will now be trapped on this new means test.
"If they are lucky, children can now use Brown's new fund to build up just enough to pay his government's first year tuition fees."
The Child Poverty Action Group also criticised the plan, saying it did not go far enough for those who need help most.
The lobby group's director, Martin Barnes, said: "The tax relief provisions will be of greater benefit to the better off, since they are most likely to be able top up to the fund.
"More needs to be done to tackle income poverty and ensure that all families have sufficient money to meet today's needs and essentials. "