Patricia Hewitt, Economic Secretary to the Treasury, unveiled plans to give an official "CAT-mark" to ISAs that offer a fair deal on charges, access and terms.
In a significant climbdown, the Treasury ditched a plan to restrict its CAT-mark to funds which track movements in the FTSE All-Share index, a proposal that had been resisted by the fund management industry.
But in a move that will exclude the majority of investment funds at present, no fund will get the CAT-mark if it charges over 1 per cent a year.
Ms Hewitt said: "Many people don't save or don't save enough because they are worried about being ripped off. Our research shows that two-thirds of the public are worried about hidden charges. Our CAT-standards will get rid of the small print and hidden charges."
The plan attracted dissent from fund managers who said they would struggle to make a profit if they charged only 1 per cent for the CAT-marked ISA.
Colin Ledlie, assistant general manager at Standard Life, said: "There are very few products which meet this standard. It will be challenging for anybody to make any margin at all."
Fund managers and insurers said the plans were more complicated than their predecessor, PEPs, and failed to take account of the need for financial advice.
The CAT-marks will be given to tax-exempt Individual Savings Accounts investing in cash if they pay interest no lower than 2 per cent below base rates.
ISAs investing in life insurance will get the CAT-mark if they offer a money-back guarantee after three years and charge no more than 3 per cent a year.
Other fund managers welcomed the CAT-mark plan, notably Fidelity and Virgin, both of whom say they will have a CAT-marked ISA ready by April.Reuse content