When we think of Christmas presents for children we probably have an image of them excitedly unwrapping gifts. What we might not remember is how quickly those gifts can be discarded or forgotten about, unless we’ve really hit the jackpot.
And it can be hard to know what to get them, especially when everyone else is buying them something too. So, there’s a case for getting them something more meaningful – perhaps not as exciting, but one that will make a genuinely positive difference to their lives in years to come.
Whether it’s your children or grandchildren, nephews and nieces, godchildren or your friends’ children, a financial gift or contribution could be the most valuable present they’ll get this year.
Open a Junior ISA
You can pay up to £9,000 into a Junior ISA (JISA) each tax year and any growth in the money you invest is sheltered from income tax and capital gains tax. Parents, friends and family can all save on behalf of the child as long as the total stays under the annual limit, making them a great financial gift for a child in your life.
The child can access the money in the account from age 18, and they can manage their savings and investments from age 16. At 18 they can do what they like with it, including rolling it into an adult ISA. They can hold cash or stocks and shares, or a combination of both. Junior Cash ISAs are available from many banks and building societies, while Junior Stocks and Shares ISAs are offered by fund groups and most investment platforms, take a look at the best platforms for JISAs.
Trust in investment companies
If you don’t like the restrictions on JISAs – such as the child getting access to the account at 18 – there are more flexible stock market-based options available. They include investment trusts – also known as investment companies – which are listed companies trading in shares and other financial assets.
The long time horizon when investing for children can make investment trusts especially useful. They are typically lower cost than other collective funds, and have a mechanism that enables them to provide steady dividends over the time, which can be reinvested to generate further growth. Many investment trusts offer savings schemes for children, allowing adults to make regular or lump sum investments. Crucially, if you’re uncomfortable about an 18-year old having control of a significant fund, it’s the adult that retains control over the investments, while money can usually be withdrawn without penalty.
Most platforms offer investment trusts. Use our free comparison tools to make sure you’re using the best platform for you.
Start a pension for them
Unlikely as it sounds, you can open a pension for a child under the age of 18. And while they might not be impressed now, they’ll likely be grateful later in life, as the money could grow into a very valuable nest egg over the decades. A pension can be opened for a child until they turn 18. Only a parent or legal guardian can start one, but anyone can pay into it once it’s open.
It’s also a tax-efficient way to save for your children’s future, due to the tax relief paid on contributions. The maximum you can pay into a child’s pension is £2,880 a year, but this effectively becomes £3,600 when government tax relief is factored in. As with junior ISAs, always check for fees as anything too high can eat into your returns.
Open a children’s savings account
If you want to start saving regularly for a child but still need access to your money, then some regular savings accounts for children pay attractive interest rates. These accounts can have higher interest rates than normal savings deals, though there are often restrictions such as lower maximum deposits.
The main options are Instant Access accounts, which have variable interest rates but allow you to access the money as and when you need to, and Regular Saver accounts. These usually require monthly deposits and have restrictions such as withdrawal limits. The best Regular Saver accounts for children currently pay between 3.25% and 3.80%, while the top Instant Access options currently offer between 4% and 5%.
Photo by Aleksandr Kichigin on Canva
