Options if you want to give a financial gift this Christmas
If you’re looking to give a child something potentially longer-lasting than the latest toys this Christmas, you might want to consider giving them a financial present instead.
However, handing over notes or coins in an envelope often isn’t ideal, as not only can this be spent immediately, but it also won’t earn any interest or returns.
Here, we round up some of the options for parents looking to give a monetary present this Christmas that will hopefully grow over time.
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Children’s savings accounts
If you want your child to earn interest on their savings and perhaps to encourage them to pay into an account themselves over time, a children’s savings account may be worth considering. However, you’ll need to keep a close eye on how much interest they’re getting and to move their money elsewhere if returns are no longer competitive.
Current best buy children’s savings accounts according to savings website SavingsChampion.co.uk include Saffron Building Society’s Children’s Regular Saver account, which can be opened with £5 and pays 5.55% annual interest before tax. The maximum that can be paid into this account each month is £100. Halifax’s Kids Monthly Saver account similarly pays 5.5% on a minimum opening balance of £10, with monthly contributions again capped at £100.
Laura Suter, director of personal finance at AJ Bell said: “If you want to put money in a cash savings account for a child, you’ll likely need the child’s parents to open the account for you (assuming that’s not you). You should hunt around for the best rate possible, and then make a note to check back on the rate in a year or two, as banks have a nasty habit of slashing the interest on offer and relying on people not moving their money.”
Guide to responsible investment guide from Hargreaves Lansdown
Premium Bonds
Premium Bonds from National Savings & Investments (NS&I) are a popular option for parents because they are not only 100% backed by HM Treasury, but they also offer the chance for bondholders to scoop one of two million pound jackpots each month, as well as thousands of other lower value prizes.
However, whilst this might be appealing, there are downsides to consider. Alice Haine, Personal Finance Analyst at Bestinvest by Evelyn Partners, the online investment platform, said: “The interest received on the holding is decided by a monthly prize draw with the prize fund rate set to reduce to 4% from January 2025, down from the current rate of 4.15%. This rate is still less than the top easy-access savings rates available right now plus it could be cut at any moment, and it is not a guaranteed return. The child needs to win a prize to make a return, with many not receiving any prizes at all over a 12-month period unlike bank interest which is guaranteed.”
Junior ISAs
If you’re thinking about longer-term savings for children, inflation can eat into the spending power of their cash over time, so you might want to think about investing on their behalf via a stocks and shares Junior ISA.
According to calculations by AJ Bell, someone who saved £25 a month from birth to the age of 18 into a stocks and shares Junior ISA would potentially generate a pot worth £8,000, assuming growth of 4% a year. Ms Suter said: “The downside is that the money can’t be accessed until the child is 18. Similarly, when they reach 18 they take control of the money, which means they could cash it in and go on a spending spree – despite your protests.”
Junior SIPP
An even longer-term option as a financial Christmas present could be to start saving into a Junior self-invested personal pension (SIPP) for a child. Bear in mind, however, they won’t be able to access this money until their late 50s at the earliest.
Alice Haine said: “A child might not appreciate this gift right now, but they certainly will in later life. Non-taxpayers, including children, have an annual gross pension allowance of £3,600 with contributions still attracting 20% tax relief. This means a relative can invest up to £2,880 into a child’s Self-Invested Personal Pension (SIPP), which is then topped up by the Government with £720 in tax relief.”