Make your money count: financial gifts for children
Looking for a Christmas gift that lasts longer than toys? A financial present could be the perfect way to support your children or grandchildren’s future.
They may not appreciate it right now, but when university fees loom or a first-home deposit is needed, they’ll be grateful to have a savings pot to fall back on.
While giving cash is simple, there’s always the chance it’ll be spent on the very toys or gadgets you’re trying to avoid. So it’s worth thinking about putting your present somewhere it can grow over time instead.
Here are some of the main options to consider.
Premium Bonds
Premium Bonds from National Savings & Investments are often popular as financial presents, as they offer the opportunity for bondholders to scoop prizes each month, ranging from £25 up to £1m.
A spokesman for Moneyfactscompare.co.uk said: “Anyone can buy bonds for children they know. There may not be guaranteed returns, but for many, Premium Bonds can be a great way to give children the chance to win tax-free prizes, and can be a fun gift idea for Christmas, too.”
If you’re buying Premium Bonds for a child that’s not your own, the child’s parent or guardian must give you permission to share their information with NS&I. They must also be happy to look after the investment for the child, until the child reaches the age of 16.
The minimum investment you can make in Premium Bonds is £25 and the maximum is £50,000.
Junior ISAs
Although it’s only the child's parent or legal guardian that can open a Junior ISA, it doesn't mean they're the only ones who want to make contributions. Many accounts will allow grandparents or other relations or friends to pay in too. Up to £9,000 per child can be saved into Junior ISAs each tax year
Junior ISAs are similar to standard ISAs, in so far as they are effectively a tax-efficient wrapper which can hold stocks and share or cash, or a combination of these. As the name suggests, they are specifically for children and are therefore the account is held in the child’s name. Any money held in Junior ISAs can only be accessed by them once they reach the age of 18.
Pensions
If you’re thinking very far ahead, another option you might want to consider for your child is paying into a self-invested personal pension (SIPP). As with Junior ISAs, a parent or legal guardian must open the account on behalf of the child, but once it is set up, anyone can contribute.
Laura Suter, director of personal finance at AJ Bell, said: “You can save up to £2,880 a year in this account, which will get topped up with tax relief from the government to £3,600. But it’s a very long-term option, as your child won’t be able to access the money until they reach retirement age. However, if you made just one contribution of £2,880 at birth and it grew by 5% a year, your child would have a pot worth £58,000 by the age of 57 – showing the magic of investment growth and compounding.”
Savings accounts
Children’s savings accounts often pay competitive rates of interest and can be a good way for children to see their money grow once they are old enough to pay pocket money into their accounts themselves.
For example, Nationwide’s FlexOne Saver account pays a generous 5% interest on balances up to £5,000, although your child will need a FlexOne current account first. Applications can be completed online for children aged 13–17, while those aged 11 or 12 must apply in a branch with a parent or guardian.
Another strong option is the Kent Reliance Demelza Children’s Savings Account, which pays 4.18% on balances up to £25,000. This account open to children from birth to age 17, with applications accepted by post or in branch. For children under seven, an adult will need to open the account on their behalf.
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However, there may be tax implications to consider if money paid into the account by a parent earns more than £100 in interest. If this happens the parent will need to declare this to HMRC and they may have to pay tax on it, as the interest will be treated as their own income rather than their child’s.
However, it will only be taxable if the parent has exceeded their own Personal Savings Allowance, which is the amount of interest you can earn tax-free each year. Basic rate taxpayers have a £1,000 Personal Savings Allowance which reduces to £500 for higher rate taxpayers. Additional rate taxpayers don’t get a Personal Savings Allowance.
The £100 limit only applies to money given by parents, so if grandparents or anyone else puts money into a children’s savings account on behalf of a child this will remain tax-free.
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