Don't give your children any toys this Christmas...

Harvey Jones

Admit it, your children and grandchildren have got all the plastic junk they could ever want. Their rooms are full of toys, dolls, screens, cubes, games and consoles, most destined for the bin one day. So why not give them the gift of something a little more enduring? 

A savings account or investment plan will have far more staying power, helping them make the transition to adulthood and beyond. It's the perfect gift—one that grows with your child, rather than something your child quickly grows out of. 

 

Start with a bank or building society account 

A simple children's savings account is a great way of teaching your little ones the value of money, especially if it comes with a cash book on mobile banking app, so they can track its growth over time. 

Some accounts trying to lure children with gadgets or cuddly toys but look for one paying the best interest rate instead. 

That isn't easy in these days of rock bottom interest rates, although the good news is that banks and building societies typically pay higher rates to children, in the hope of securing their custom for life. 

Rates change all the time, so check the online best buy tables to see which currently offers most generous rates. Also take a look at your local building society, many of them may be small but they go big on children's savings. 

child christmas

 

Beware an unexpected tax bill 

Although children are unlikely to pay tax on the savings interest, the taxman still likes to keep an eye on them. Children can earn up to £100 interest a year on money given by a parent, step-parent or guardian without any income tax liability. However, interest above that may be taxable, on the adult, rather than the child.  

There is no tax liability on money gifted from friends and family, including grandparents. 

 

Consider a Junior Isa 

Alternatively, you can save a maximum £4,368 this financial year in a Junior Isa, with all returns free of income tax and capital gains tax. Again, shop around for the best rate. Local building societies tend to be most generous, along with government-backed National Savings & Investments, but some of the bigger banks also pay attractive rates.  

Parents and legal guardians can open and manage a Junior Isa for any child under 18. The child takes control from age 16, but cannot make withdrawals until they turn 18, at which point the money can go into an adult Isa with full tax benefits. 

They can then use the money for any purpose, whether university fees, buying a car, or putting down a deposit on a house. 

 

Stocks and shares 

Children arguably make the best investors of all, because they have so much longer for their money to grow in value. If investing for 18 years, you can afford to ignore short-term stock market volatility, while benefiting from superior long-term growth. 

A range of platforms offer stocks and shares Junior Isas, including AJ Bell, Fidelity, Charles Stanley Direct, Hargreaves Lansdown, Interactive Investor and Vanguard

You then have to choose investment funds to put inside the tax wrapper, with the low-cost Vanguard LifeStrategy range of passive index-tracking funds popular, along with global investment trusts such as Scottish Mortgage, F&C Investment Trust and Witan. 

Investment funds Fundsmith Equity, Lindsell Train Global Equity and BMO Global Smaller Companies are also in demand. 

Investing £50 a month over 18 years would cost you £10,800 in total, but could grow to £33,169 by adulthood, Interactive Investor calculates. 

That's far more than their old plastic junk will ever be worth. 


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