Five ways to give a child the gift of money (without handing over cash)
It may not get the same enthusiastic response as a Nintendo Switch or a Kindle Fire, but a cash present at Christmas could prove to be extremely lucrative down the line.
Putting a note in an envelope is the most straightforward way of giving a financial gift, but this could easily get squandered on rubbish.
If you want your gift to be enduring, there are a number of options. Adrian Lowcock, head of personal investing at platform Willis Owen shares his top five:
Buy gold coins
As an investment, gold is difficult to value as it does not produce anything nor does it generate an income but it continues to be in demand by investors in times of crisis.
Gold coins provide a combination of a valuable investment while giving you something to appreciate and admire. There are many coins to choose from ranging in value and age with some more collectable than others. The Royal Mint offers a wider range of gold coins commemorating various events.
Put some money in a Junior ISA
Putting money into an ISA might not be on the top of everyone’s letter to Santa, but in years to come that money may have grown into a significant sum. A parent or guardian can set up a Junior ISA but anyone can contribute up to the annual allowance of £4,260.
The money can be placed into cash or invested.
A Junior ISA taken out in a child’s first year and growing at 5% a year would have nearly doubled in value and could be worth over £10,000 18 years later. Additionally, this helps to encourage an interest in savings and investing at an early age which is a habit that is better developed sooner rather than later.
Buy some Premium Bonds
Anyone over 16 can buy Premium Bonds in their own name; however, parents, legal guardians and grandparent can also buy them on behalf of under-16s. The rules are changing and anyone – aunts, uncles, godparents, family friends – will soon be able to buy them. The date of this change will be announced by NS&I in due course.
The minimum purchase is £100 (going down to £25 from March 2019) worth of bonds with a maximum holding of £50,000.
Premium bond holders get put in a monthly prize draw. Every month each bond holder has a chance of receiving a tax-free prize of between £25 and £1 million. The odds of winning the top prize is nearly 36 million to 1 and this drops to 24,500 to 1 for the minimum prize of £25. The annual prize fund is based on an interest rate of 1.4 per cent tax-free. However, bear in mind that any prizes are down to luck and investors may not win anything.
Premium Bonds are backed by the Government so there is an implicit guarantee of investor’s capital. Visit National Savings and Investments for more information.
Put money into a cash savings account
Dedicated children’s savings accounts often boast the most generous interest rates on the High Street and online.
For example, Halifax Kids’ Monthly Saver account is paying 4.5%, which allows savings of £10 to £100 a month per child. The rate is guaranteed for only a year and interest is paid at the end.
These accounts hold money in the child’s name and can be good way to encourage children to save. Generally, banks and building societies require the parent or legal guardian to be involved in setting up the account as they’d need to provide ID such as a birth certificate, but anyone can contribute to a savings account on behalf of a child.
Open a Junior SIPP
Parents with a long-term view and a child who has everything may wish to consider a Junior SIPP [self-invested personal pension]. Up to £2,880 can be contributed into a Junior SIPP and this is increased by a 20% tax relief contribution from the taxman to £3,600.
The investment grows free of income and tax and would only be accessible when they turn 57. At 5% growth an initial contribution of £3,600 would be worth over £58,000 in 57 years’ time. Given the long-term nature of the Junior SIPP it is worth considering investing in funds which offer diversification and do not require constant monitoring.
Junior SIPPs can be opened on most investment platforms.