Where’s best for your children’s Xmas cash?
There’s plenty of clever ways to make the gift last longer
IF YOUR children or grandchildren received cash for Christmas, now could be the perfect time to help get them into the savings habit.
Whether you invest on their behalf or encourage them to open their own bank account, a lesson in budgeting and saving is a gift that will last a lifetime.
Here, Money Mail walks you through all the options available.
Totting it up
ONE choice is a bank or building society account for children. Some aim to teach them about handling money. Others home in on parents and relatives wanting to build up a lump sum for when the child reaches adulthood.
Good basic accounts that help children understand everyday money include Principality’s Learner Earner at 3 pc. Virgin Money Young Saver pays 2.25 pc, Mansfield BS Young Saver pays 2.1 pc while Lloyds Bank Child Saver and Halifax Kids’ Saver pay 2 pc.
With these accounts, the child normally gets control of the money when they reach 16.
If you’d rather they wait until they reach 18 for access, then you need to set up the account as a ‘bare trust’, with you — or someone else of your choosing — acting as the trustee.
But under law, the money is the property of the child and they automatically get access to it when they turn 18 (or 16 in Scotland).
Skipton BS has made its Children’s Saver, which pays 1.8 pc, easy to set up as a trust.
Nationwide’s Future Saver is set up so that parents retain control of the money until they decide to hand it over to the child — say, on their 21st birthday.
It pays 3 pc if the parent has their main current account with the building society, or 2 pc if they don’t. It allows only one withdrawal in each 12-month period.
Junior investor
YOU can save up to £4,368 in a tax year in a Junior Isa (Jisa) for a child. The account must be opened by the parent, but other adults can arrange with them to put in money, too.
The child can manage the account once they reach 16 and it is automatically tax free. The money becomes theirs on their 18th birthday.
This could mean money put aside for university fees or house deposits may be squandered, so some parents and grandparents won’t want to invest too much into Jisas.
You can choose to put the money in a cash savings account or into shares. Some two out of three picked the cash option in the tax year to 2018, latest figures show.
On the cash version, Coventry BS pays a top rate of 3.6 pc, followed by National Savings & Investments (NS&I) at 3.25 pc.
Laura Suter, personal finance analyst at investment platform A.J. Bell, says: ‘ Lots of parents keep their Jisas in cash, but it is an ideal account for long-term investment in shares.’
Patrick Connolly, from independent advisers Chase de Vere, recommends HSBC FTSE All Share Index, which tracks the prices of UK shares, or Vanguard Life Strategy 60 pc Equity, which invests in a range of tracker funds, shares and fixed interest.
Other options are Rathbone Global Opportunities, investing predominantly in Europe and the U.S., and Investec Cautious Managed, which typically invests half in shares and hal f in fixed interest.
Recommendations from A.J. Bell include Jupiter UK Special Situations for a less risky approach, or Schroder Global Recovery for the adventurous.
Early retirement
IT IS never too early to set up a pension — and children qualify for tax relief, too.
The family can contribute up to £2,880 a year, which the government will top up to £ 3,600 through tax relief at the current 20 pc basic rate tax. Setting up a pension will help them enjoy a wealthier retirement and is very tax efficient.
The full £2,880 put in for your child’s first 18 years would create a pension pot of £99,616 at age 18, assuming investment growth of 4 pc a year, says independent financial advisers Brewin Dolphin.
The major drawback is that they can’t get the money until they are in their late 50s.
Patrick Connolly says: ‘Pensions are really only suitable if other savings are already in place. Jisas, investment funds and savings accounts can give children a helping hand by paying for education and mortgage deposits.’
Bond winner
AUNTS, uncles, godparents and family friends can all buy Premium Bonds for children aged under 16.
You can only buy them in blocks of £25 (the minimum holding), so if you want to give more, it will cost you at least £50.
They don’t earn interest, but you have a chance of scooping up one of the many monthly prizes of between £25 and £1 million. The odds of winning a prize is 24,500-1 on each £1 in the bonds. They have already turned 11 under-16s into millionaires since the £1 million jackpot was introduced in 1994.
You need to hold the bonds for a full calendar month for them to go into the draw. If you buy them this month, the bonds will qualify from March.
You can buy Premium Bonds for someone else’s child online or by post or for your own child by phone, too. NS&I will send you an electronic or paper gift card.
Gift wrap
REMEMBER, normal gifts out of your income which don’t affect your standard of living are free of inheritance tax.
You can also use the annual exemption which lets you give away up to £3,000 every tax year (to one person only).
And you can make as many gifts as you like of up to £250 during the tax year to as many people as you like — except the person who benefited from your £3,000 annual exemption allowance. PS IF YOUR children received vouchers instead of money at Christmas, ensure they are spent as soon as possible in case they have a short expiry date or the shop ceases trading. No one likes to see a gift go to waste.