A present to treasure for years, not just a few hours

Toys are transitory but a savings account just keeps on giving. Simon Read reports

Dunfermline building society – owned by Nationwide – is targeting children with its latest market-leading savings account. Its four-year Child Savings Bond launched today pays 5 per cent gross and is timed to coincide with the approaching Christmas giving season.

Niall Fraser, the head of branches at the Dunfermline, says: "The festive season is a good time to promote a savings message to young people. Apart from birthdays this is the time of year when youngsters are likely to receive money gifts from absent family members.

"We believe that trying to build a savings culture, rather than a borrowing culture, can only be a good thing but it is important to start as early as possible to get the message across. It is also worth noting that many children's gifts, such as toys, have a short shelf life, but a good financial education is a skill that will stay with the child his or her entire life."

Wise words and ones that will ring true with thousands of parents who will see expensive presents cast aside by Boxing Day this year. Research from the Children's Mutual shows that the average child will be given £380-worth of presents this year, while being handed just £73 in cash.

David White, the chief executive of The Children's Mutual, says the cash could grow into an important nest-egg, while presents will soon be discarded. "Around £200 is spent on presents that won't make it past Easter, but if this money was invested in a Child Trust Fund (CTF) each year, it could be worth £6,100 by the time it matures when the child turns 18."

Every child born since 1 September 2002 has been given a CTF, with the Government starting it off with £250, with a further £250 at age seven. But a further £1,200 per year can be invested in the funds by family and friends, and Christmas is an ideal time to give children a cash boost.

The funds can be invested in simple savings accounts or investments. "For those who want their money to be as safe as possible, cash CTFs are the place to be," advises Justine Fearns, an investments research manager at AWD Chase De Vere.

For investment CTFs, Ms Fearns favours the Children's Mutual. "It offers access to some great funds from Invesco Perpetual, Gartmore, Insight and UBS, including the Invesco Perpetual Income Fund and Gartmore Cautious Managed, as well as offering a Shariah compliant CTF."

If your children are too old for CTFs, it may be worth looking at other long-term investment opportunities to help give them a financial start. "Investment trust savings schemes are another way you can save for your children and can offer excellent value," says Sherry-Ann Sweeting of Scottish Investment Trust.

Ms Fearns advises that parents approach children's savings in the same way as their own. "It is important to remember that, unless there is a specific need for investment, investing for children is really just like investing for yourself – you need to consider the usual things, such as term of investment, access required, the risk that you are willing to take and how much you are going to be investing."

She suggests the M&G managed fund as a core investment. "Or M&G's Cautious Multi Asset fund, which invests across a range of asset classes to help reduce volatility over time."

If you are wary about risking your children's cash on equity markets, then you should stick to savings accounts. "But parents and grandparents must shop around for the best deals on children's accounts," warns Kevin Mountford of Moneysupermarket.com.

"With the average rate at only 1.07 per cent it's important to keep an eye on the rates to get the best return."

Dunfermline's new four-year bond is worth considering, but also check out our table of current best buys.

Early start: A nest egg for the boys

Five-year-old Ewan and one-year-old Fraser are set to get a cash boost this Christmas. Fiona and Colin Watkins have encouraged family and friends to top up the boys' child trust funds.

"My parents have given them £100 each, and that's on top of the £10 they put in every month to each account," says Fiona, 36. "We also put in a tenner each month and we hope that the accounts will give them a good nest egg by the time they reach 18."

The couple chose stocks and shares child trust funds with the Children's Mutual. "I know stock markets have been highly volatile recently," said Fiona, "but we are hoping that it will balance out over time."