Giving financial gifts to children

Laura Suter, “Before writing that cheque or posting a £10 note this Christmas, there may be better options for gifting money. Gift cards often go unused and get forgotten about, meaning your money is wasted, while cash could get lost in the post. Putting money into a savings or investment account, or buying Premium Bonds, might be a better way to give a longer-lasting gift that doesn’t get lost down the back of the sofa.”

If you want to give a financial present this year, here are some of the various ways to go about it.

Premium Bonds

Premium Bonds from NS&I can be a great way to save for a child. Whilst they don’t pay any interest, they offer the chance to win cash prizes every month, ranging in value from £25 up to £1m. Premium Bonds currently offer a 4.65% prize fund rate, although this is based on average winnings, and there’s a chance that the bonds you buy could win nothing.

You can buy Premium Bonds online via NS&I’s website, and the minimum amount you can invest is £25. You must be over 16 to buy them, but if you want to give them as a present, you can buy Premium Bonds for under-16s and then nominate the child's parent or guardian to hold them on their behalf.

Savings accounts

If you want to put money into a cash savings account for a child, and you’re not their parent or guardian, you’ll usually need the child’s parents to open the account for you.

HSBC’s MySavings account, for example, pays 5% annual interest on balances up to £3,000. The account can be opened with a minimum deposit of £1.

If you want to save regularly on behalf of a child, then Saffron Building Society’s Children’s Regular Saver account pays 5.80% on monthly deposits between £5 and £100 a month.

Savings and investments with AJ Bell

Award-winning Bestinvest - Junior ISA, ISA's and Stocks and Shares

Junior ISAs

Another option you might want to consider is a tax-efficient Junior individual savings account (ISA), that the child can only access once they reach the age of 18, and which friends and family can contribute to as well. You can either open a cash Junior ISA, or if you’re comfortable accepting a level of risk, a stocks and shares Junior ISA. The maximum you can contribute to a Junior ISA in the current 2023/24 tax year is £9,000.

Malcolm Peacock, head of ISAs at Hargreaves Lansdown, said: “All I want for Christmas is a Junior ISA’, said no eight-year-old ever. But while they might not thank you now, their future self-will, as the power of compounding gets to work on whatever you put away for them between now and their 18^th birthday.

“They’ve got time on their side and so investing in the stock market will give them the opportunity to generate greater returns than simply holding savings as cash.

Pensions

If you’re thinking really long term, you might want to consider paying into a pension for your child. Bear in mind, however, that they probably won’t be able to access these savings until they are into their sixties. One of the biggest benefits of giving a pension to a child is that a relative can contribute up to £2,880 into a child’s Self-Invested Personal Pension (SIPP), and this will be topped up by the Government with £720 in tax relief.

Alice Haine, DIY investment platform Bestinvest said; “A sum of £2,880 invested every year in a child SIPP, topped up with government tax relief of £12,960, would mean total contributions of £64,800 over 18 years. Were those contributions to grow by an annual compound growth rate of 5%, then at 18 the pension would be worth an impressive £107,619. Even if no further contributions were ever made after this age, the pension would tip over £1 million by the age of 62, just in time for retirement, with an annual compound return of 5%.”