Over a 10-year period or longer, the amount finally paid to a child should be enough for a deposit on a car, or a trip abroad.
But behind the carefully targeted marketing of these savings plans - including offers of free Walt Disney videos and Alice in Wonderland chess sets - lie chunky charges of up to 20 per cent of contributions.
Over 10 years, Homeowners will deduct £418 from contributions of £2,160 to its Children's Cash builder, assuming monthly payments of £18.
Tunbridge Wells Equitable Friendly Society deducts £441 from contributions to its Baby Bond for young people aged 10 to 18.
If a Homeowners plan is surrendered after three years, a child might get back only £529 out of contributions of £684. Tunbridge Wells savers might be refunded just £354.
This is not to say that the performance of the underlying fund is not satisfactory. A recent survey by Planned Savings showed Tunbridge Wells to be among the top 10 companies offering with-profits savings schemes over 10, 15, 20 and 25 years.
Other friendly societies also showed relatively good performance.
Later this summer, savers will be allowed to increase monthly contributions they make to friendly society tax free schemes from £18 to £25 following a concession in the 1995 Finance Bill.
But what are the alternatives if you want to build a nest egg for children?
Savers who want to take less risks can opt for five-year National Savings Children's Bonds, which offer 7.85 per cent interest tax-free over the policy's term.
There is also a range of companies offering tax-free personal equity plans with regular contribution levels starting from £20 a month.
For example, Perpetual offers its Global Option PEP, which has no initial charge, a 5.25 per cent levy on each contribution, plus annual fund management fees of between 1.25 and 1.5 per cent. However, these plans may not be taken out in a child's name.
Even if they are set up in the adult's name, gifting the proceeds to the child may involve tax liabilities.
It is possible to use an annual gift allowance of £3,000, which can be doubled if no gift has been made in the previous year. The allowance is exempt of inheritance tax.
However, inheritance tax liabilities may arise on gifts where the transferring adult dies within seven years of the transfer being made.
Taking advice on the tax implications is important.
SAVING FOR CHILDREN
Homeowners FS Children's Cash Builder Tunbridge Wells Equitable FS Baby Bond Family Assurance FS Junior Bond BWD Rensburg Unit Trust PEP Perpetual Global Option PEP Sovereign PEP Templeton PEP
£18pm £18pm £18pm £20pm £20pm £20pm £20pm
60% of first year's premiums, 1% annual management charge, 5% per payment, 50p per month handling charge
first six months premiums on unit-linked polices, 1% annual management charge, 5% bid-offer spread, 50p monthly policy fee
65% of first year's premiums, 1.95% annual management charge in first 10 years and 1% thereafter
No initial charge, 1.4-2% annual management charge depending on unit trust selected, 5% per payment
No initial charge, 1.25-1.5% annual management charge, 5.25% charge per payment
No initial charge, 1-1.5% annual management charge depending on trusts selected, 5-5.5% charge per payment
No initial charge, 1.25 annual management charge, 6% charge per paymentReuse content