Savvy ways to give your kids money this Christmas

Published by Moira O'Neill on 12 December 2017.
Last updated on 12 December 2017

Savvy ways to give your kids money

Rather than buy yet more toys for the kids in your family, consider setting up a saving or investment plan for them.

Many children have hundreds of pounds spent on them at Christmas. But could that money be put to better use? According to the Toy Retailers Association’s Dream Toy list, Hasbro’s £134.99 FurReal Roarin’ Tyler, the Playful Tiger is one of the must-have toys this Christmas. Yes, it may feature 100 sound and movement combinations, but the answer to my kids will be a firm ‘no’.

As British parents prepare to spend an average of £121 on each child up to age 11, according to analysts at NPD Group, my family follows the ‘frugal four gift’ rule for children at Christmas. This goes as follows: “Something they want, something they need, something to wear, and something to read.”

The second item on that list is most relevant for this article. What all children need is a long-term investment plan – something to stand them in good stead, when they go off to university, need a deposit for a fi rst home, or to use as a basis for retirement planning.

Although they may not thank you now, they will be VERY grateful in later years.

It’s a good idea to have a ‘saving for children’ conversation involving all family members – can grandparents contribute too? If you all agree to put a small amount of money into a child’s savings account every Christmas and birthday, this could amount to thousands of pounds over his or her childhood.

The advantage of giving cash is that it can be turned into an educational money tool. Whatever account you choose, it’s important that you involve the child in the decision and management of the account so that they can see how the money grows over time. The type of gift that you give depends on how much you want to contribute, as some investment products have fees that would eat into smaller amounts of cash over time.

Cash gifts of less than £100 could be used to open a savings account, or to top up an existing investment such as a Junior Isa. If you have larger sums of £500 or more, or want to start making smaller but regular contributions, consider setting up a long-term investment plan.

Junior Isas

Junior Isas (also referred to as Jisas) are tax-free savings accounts for under 18s. This tax year you can save up to £4,128 in a Jisa. This allowance can be split across both Stocks and Shares and Cash Jisas or saved in just the one Jisa type.

While all the family can contribute, this type of Isa can only be opened by somebody with parental responsibility for the child. It is only this person, known as the registered contact, who can give investment instructions and who will receive all the documentation. The child can’t withdraw the money until they turn 18.

Stocks and Shares Jisas are the most popular product for parents and grandparents saving for children, the results of a recent Moneywise.co.uk poll below reveal.

A quarter (25%) of those who voted said a Stocks and Shares Junior Isa is where they put money when saving for kids in the family.

If you want to combine active and tracker funds using the Moneywise First 50 Funds list, then Charles Stanley Direct (Charles-stanley-direct.co.uk/ Our_Services/JISA) is our top pick Stocks and Shares Jisa provider for having the cheapest and most user-friendly option and allowing transfers in of Jisas and Child Trust Funds from other providers.

In contrast, Cash Jisas were only the third most popular product in our poll, with just under two in 10 (19%) saying they use these.

For cash, the Moneywise Best Buy is the Coventry Building Society Junior Cash Isa. This pays 3.25% interest to young savers and can be opened by post or in branch. Although fund performance cannot be guaranteed, it is likely that a Jisa invested in a portfolio of well-chosen investment funds will grow faster than the cash equivalent, when invested over a period of at least five years.

Cash savings accounts

Going back to Moneywise’s poll results, cash savings accounts were the most popular product after Stocks and Shares Jisas, receiving 21% of the votes. Unlike Jisas, these accounts are not taxfree. However, children are unlikely to earn more than the income tax threshold of £11,500. The Moneywise Best Buy for lump sum deposits is the Santander 123 Mini current account. This pays 3% interest on balances that children hold between £300 and £2,000.

It is available to all kids aged between 11 and 17 and, as this is a current account, they can also get a debit card in their name.

If your child is slightly younger or has a larger lump sum to save, consider the HSBC MySavings account. This can be opened in branch and is available to anyone aged between seven and 17. It pays 2.75% on all balances up to £3,000, plus 0.25% on any balance over that amount.

Other options

In the Moneywise poll, other options selected by readers saving for children included: investment trust savings schemes (11%), Premium Bonds (10%), pensions (5%), and direct shareholdings (1%).

A further 8% selected ‘Other’, with responses given ranging from the likes of Child Trust Funds to property, and even (slightly worryingly) “under the carpet”.

Investment Trust savings schemes

These are savings schemes run by investment trust managers that allow monthly or annual purchases of investment trust shares for free, or for a nominal charge.

Our pick in this area is the Baillie Gifford Children’s Savings Plan (Bailliegifford.com) which provides access to a selection of well-managed Baillie Gifford investment trusts. These include Scottish Mortgage, a diversifi ed global equity investment trust and member of the Moneywise First 50 Funds, that works well as a core stock market holding. The scheme is very accessible too. The minimum investment into each trust is a £100 lump sum or £25 a month.

Premium Bonds

Some people deride Premium Bonds for paying no interest, but others like the idea of the chance to make your child a millionaire.

From 1 December 2017, the odds of winning a prize in the monthly Premium Bond draw will be boosted from 30,000 to one to 24,500 to one. At the same time the effective prize fund interest rate will increase by 0.25% to 1.4%.

This means the number of prizes paid out each month will rise from 2.3 million to 2.9 million, and the value of these prizes will rise from £68 million to about £83 million.

Until the child’s 16th birthday, the parent or guardian nominated on the application looks after the Bonds, regardless of who buys them.

Visit Nsandi.com/premium-bonds for further information.

Pensions

Putting money into a pension for a child is the ultimate long-lasting legacy. There is tax relief on contributions, and there is plenty of time for the money to grow, as a child won’t be able to access their money until they are 55 (based on current legislation at least).

Read more about investing for children on Moneywise

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