Five Christmas presents that will last beyond Boxing Day

Are you wondering what to buy your children or grandchildren this Christmas? Do you despair of the fashions in toys, the astonishing cost of some of the things you’re being asked to buy, or have you checked how much of last year’s pile remains unused and unloved? Wouldn’t it be great if a present you give now could continue to provide enjoyment in many years’ time?

Sadly, giving money is rarely seen as a ‘proper’ present because the giver is often accused of having no imagination! However, a regular savings plan or just putting aside a single sum of cash can give you the opportunity to help the younger generation understand money, dream about what the possibilities are and appreciate your generosity when they’re old enough to really say thank you. Here are five options to consider:

  1. Children’s savings accounts

Although they operate in the same way as normal savings accounts, these often pay better rates of interest than the adult equivalents. If the child is under the age of seven the account has to be held in the parent’s name, but with the child’s initials on it just as a reminder! It is essential to shop around though, as it is possible to get up to 60 times more interest from the best easy access children’s savings account compared with the worst (Source: MoneySupermarket.com 29 Nov 2013)

  1.  Children’s regular savings account

This requires a commitment to save an amount every month and while this may seem onerous, if you were going to get a bike or the new Xbox, you would be shelling out the equivalent of about £30-£40 per month, so why not save it instead? You normally can’t make ad hoc withdrawals from this kind of account, it can’t be opened with a lump sum and, if you stop making regular savings, it will often revert to the worst rate available on an instant access basis. Once again, shopping around is vital to get the best deal

  1.  Fixed rate bonds

These types of savings were very popular in the past and were usually only available from the Post Office. Now, there are many competing institutions who offer competitive interest rates. Of course, you will need to judge for how long you are happy to leave the money tied up, as the longer you leave it the better the interest rate. Care needs to be exercised though, as most of the longer term bonds may offer what looks like an attractive fixed rate, but this rate may not be as attractive if interest rates rise during the term of the bond

  1. Junior ISA

This is the young person’s version of the most popular adult savings vehicle. It offers the same tax-free environment and can be opened from the birth of the child. Up to £3,600 per child may be saved each tax year and as many contributors as you like may add to those savings. The savings will become the property of the child on their 18th birthday. As before, shop around for the best rates

  1.  Pensions

I agree that this is a really long term savings plan – after all, your child may not need to access their retirement savings until they are over 70 – but the sooner you start saving for retirement the better, as the fund will benefit from its tax advantaged status for that much longer. It is not widely known that a child can have a Stakeholder Pension from birth and up to £3,600 per year may be contributed. 20% tax relief is available at source so it actually costs £2,880 per year to fully fund it

I hope that this has given you food for thought. I also hope that your children won’t blame me when you start explaining that it was my fault that they aren’t playing Skylanders or Call of Duty after they’ve had their turkey.

Notes:

  1. Children can earn up to £100 in interest tax free on savings that have been given to them by parents or step parents
  2. Tax is payable by the donor parent or step parent on all interest earned by the child where this exceeds £100
  3. No tax is payable by the donor on interest earned from savings given to a child by a grandparent or other relative.

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