Money grows on Christmas trees

Tony Lyons on children's funds

Christmas is a time for giving. As well as presents, many parents, grandparents and relatives will decide to give money to a child.

Many building societies offer special children's accounts. There are, however, more exciting ways of putting money aside.

National Savings has a Children's Bonus Bond, series H, available for savings of between pounds 25 and pounds 1,000. It pays 6.75 per cent tax-free over the five-year term. If encashed early, interest is paid at 5 per cent a year.

For investments between pounds 1,000 and pounds 50,000, there is the Abbey National five-year Children's Savings Bond, paying a guaranteed 7 per cent fixed on sums under pounds 2,500. Early withdrawals face heavy penalties.

For something more adventurous, but without guaranteed returns, there are two equity- linked products.

Invesco, the fund manager, has the Rupert children's fund. The minimum lump sum investment is pounds 50, with regular premiums beginning at pounds 20 a month.

The fund invests in blue-chip stocks in the FTSE 100 index. Since 1988, the fund has risen in value by just over 110 per cent, compared to less than 30 per cent in building society investment.

The Rupert fund sends cards to children on their birthdays. If more than pounds 400 is invested, children receive a Rupert Bear toy, or a Rupert glove puppet if there is more than pounds 800 in the account.

Alternatively, there is a 10-year Baby Bond from Tunbridge Wells Equitable Friendly Society, available as a tax-free life assurance endowment in the child's name. Maximum investment is pounds 25 a month. A single premium can be paid which the society converts into an annuity: a pounds 2,200 lump sum investment will provide enough to pay the maximum monthly premium.

Managed by PDFM, the investment house, the Baby Bond has established itself as a good performer. Over 10 years and assuming premiums of pounds 25 a month, its value would be pounds 5,713 today, an annual growth rate of 12.4 per cent net after charges.