With Christmas fast approaching, many of us are wondering what to buy for the children in our lives. While it may be exciting for younger recipients to find a parcel under the tree, and teens often appreciate a gift card, considering a longer-term financial gift for younger people may reap dividends for the rest of their lives.
Products such as Junior ISAs, Junior pensions, Premium Bonds and fixed rate savings products all give you a chance to get savings for children going and could also start a long-term interest in financial education at the same time. Here are some suggestions.
Junior Isa
Only parents or guardians can open a Junior Isa for a child, but other relatives and friends are still able to contribute, up to a total of £9,000 a year. Money in a Junior Isa grows tax free, and you can choose to have a Junior Isa in cash or stocks and shares.
Given the long-term nature of Junior Isa saving, investments will have plenty of time to grow, which gives you the chance to invest in more exciting assets. These could include shares in products that your child is familiar with, or brands he or she likes to buy, which could help get them interested in financial education.
Alternatively, funds or investment trusts can also have a big impact on children’s savings in a Junior Isa. According to the Association of Investment Companies (AIC), if a parent , grandparent, or guardian had invested a one-off £1,000 in the average investment company for a child 18 years ago, it would now be worth an impressive £7,740 (a 674% return).
A pension for a child
You might not get the most enthusiastic thank you letter from a child if you slip a pension into their Christmas stocking, but they will certainly thank you later when they realise they have a head start on saving for old age.
By opening a Self-Invested Personal Pension for a child, the government will add to their Christmas present with a top-up of their own, even though the child is unlikely to pay tax.
That means you can put in up to £2880 a year of your own money and the taxman will put 20 per cent tax relief on top, meaning your gift would be worth £3,600. Of course, the child will not be able to access the money for many years, but that gives it longer to grow as an investment and may mean that your child does not have to divert excess money into pension savings in later life.
Premium Bonds
Premium bonds are a popular gift for a child, because although the likelihood of a good return is not high, the potential for a big win is exciting and there is no chance of losing your capital, as there is with investment.
Currently the prize rate on premium bonds (which is the best equivalent of an interest rate) is just one per cent. However, the child you gift the bonds to could be more or less lucky than this, and will no doubt thank their generous benefactor every time they are lucky in the bond prize draw.1
Children’s savings accounts
If you want a child to be able to access their financial gift more easily, a child’s savings account may be the best bet. Easy access savings accounts for children offer some good rates, with Santander’s 123 account offering up to three per cent interest. Once the child is 13 they can have a debit card on this account and spend the money, so it is worth bearing in mind whether you want them to have this access.
However you choose to give a child money, sending them a signal that saving and investing is important this Christmas could give them a great start in life. If you’re not sure of the best course of action for you, a financial adviser could help you to decide.