Ultimate present for your little one’s future

The kindest gift is cash... and there’s no wrapping required

INSTEAD of splurging on yet more toys, screens and consoles, why not give your children or grandchildren something with real staying power this Christmas?

Money paid into a savings account or investment plan could help them make the transition into adulthood and beyond.

It’s the perfect gift – one that grows with your child, rather than something they quickly grow out of.

This year more than £733million worth of children’s presents will lie wasted and unwanted, according to online investment service Wealthify.

Many of us think they are overindulged at this time of year but are still reluctant to give money.

Yet Wealthify’s chief executive Andy Russell said: “Investing that money could do far more to help your child achieve their dreams than a toy that will soon be tossed aside.”

It will still be there for them long after this year’s must-have prezzies are lost, broken or forgotten.

Get started today

It’s never too early to start saving money for children, said Kevin Mountford, co-founder of savings platform Raisin UK.

“Children’s savings accounts often earn more competitive interest rates than adult savings accounts, as banks and building societies battle to win new customers, who they hope will stay loyal for life.”

Parents can open a child savings account straight after their child is born, while children can typically open one themselves when they turn seven, Kevin said.

“You can choose between easy access accounts, regular savings accounts and fixed rate bonds. Or you could also choose to invest in a tax-free Junior Isa.”

If your child was born between September 1, 2002, and January 2, 2011, they will qualify for a child trust fund (CTF) instead.

Build their wealth slowly

The best way to get started is to set up a monthly direct debit to come out of your account after payday, said Louise Hill, co-founder of children’s savings app of GoHenry.

“Slowly but surely, the money will add up without you even realising.”

Don’t overdo it, though. “Take into account your earnings, monthly outgoings and set yourself a manageable savings target,” she said.

Louise said even relatively small amounts can add up over periods as long as 18 years. “If you start putting away £20 a month from age five you’ll have banked £3120 by the time they turn 18.”

If the money generated an average interest rate of 3 per cent a year, it will have grown to £3861.

This could go towards many things, such as driving lessons, a first car, university costs or maybe even a property deposit, Louise said. Also, take time to educate them about how to handle money, the importance of saving for the future, and how interest rates work, she added.

Children’s money apps can help. For example, GoHenry’s app now includes a gamified educational experience called Money Missions. Check out other apps such as Rooster Money, Starling Kite and Beanstalk.

Where to start?

The simplest way to begin is to set up a children’s savings account with your bank or building society. Local building societies often give you the best deals.

If you want a regular monthly savings account, Dudley pays a variable 3.5 per cent on deposits of between £10 and £150 a month.

Saffron’s regular savings account pays 3.02 per cent on between £5 and £100 a month, while Halifax pays 2.5 per cent on between £10 and £100. All these can be opened from birth and run to age 15.

For lump sums, consider an easy access account. Santander 123 Mini pays 1 per cent on balances below £1000, but this rises in steps to pay a maximum 3 per cent on between £1500 and £2000. There is no interest on any balance above that.

HSBC MySavings pays 2.5 per cent on balances between £10 and £3000, and 0.25 per cent above that. Barclays Children’s Savings pays 1.51 per cent on balances up to £10,000, falling to 0.01 per cent that. Always check the ru though.

For example, Santander parents must have a cur account with the bank for chil under 13, although over-13s open their own account online

Don’t just feel obliged to use own bank or building society.

Shop around for the best d – especially with online accou

Tax-free saving

Alternatively, consider setting Junior Isa, sometimes called a Family and friends can invest u £9000 a year free of tax.

While that is far more than m people can afford, smaller sums

grow to something sizeable over 18 years. The money belongs to the child at that age, which they are then free to spend or convert into an adult Isa with full tax advantages.

You can choose between a Junior cash Isa and Junior stocks and shares Isa, or a combination of the two. Today’s top Junior cash Isa rate is Loughborough Building Society’s 2.5 per cent, while Family Building Society pays 2.4 per cent.

Tesco Bank and Coventry Building Society both pay 2.25 per cent.

These are higher than most adults savings accounts but Laura Suter, head of personal finance at AJ Bell, said you could generate a higher return by investing in stocks and shares instead. “Parents are often wary of investing in shares for their kids but children can make the best investors as they have longer to recover from a crash.”

If you saved £50 a month in a Junior cash Isa paying 2 per cent a year, the money would be worth £13,104 after 18 years.

Invested in the stock market and generating 5 per cent a year after charges, it would be worth £17,723. That would give them an extra £4619, albeit with a bit more volatility along the way.

You can take out a ready-made Junior stocks and shares Isa from online platforms such as AJ Bell Youinvest, Bestinvest, Fidelity,

Hargreaves Lansdown, Interactive Investor, and Vanguard Life Strategy. Laura suggested three funds: low-cost passive fund Fidelity Index World that tracks the global stock market, Liontrust Sustainable Future Global Growth, which targets green companies, and the highly successful Scottish Mortgage Investment Trust.

Premium Bonds

Premium Bonds from government-backed National Savings & Investments are another popular children’s savings option.

You can save between £25 and £50,000 to give your child or grandchild a shot at winning one of two £1million monthly jackpots, or a range of smaller prizes.

It’s all down to the luck of the draw, said Emma Prince, financial adviser at wealth manager Quilter. “The annual prize rate works out as just 1 per cent, so if your children’s luck is out they could get little or nothing.”

Premium Bonds are safer than investing in stocks and shares, as your money is backed by the UK Government, but inflation could erode their value over time.