Gifts for kids that will outlive the decorations

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The Independent Online

No child's eyes will light up on Christmas morning if they unwrap a welcome pack for a savings or investment account.

But those parents who do manage to slip something serious into their kids' stockings will be giving them a present that endures.

"Christmas is a perfect time to kickstart a savings habit for your child or grandchild," says Brian Morris from the Building Societies Association. "You should think about asking friends and family to help build a nest egg."

If you are looking to invest for the short term then you are best off keeping the money in a cash savings account. These are low-risk, and many can be opened with as little as £1.

"Parents must strike a balance between high interest rates and other factors such as whether the account has a cash card or passbook, and asking if the incentives on offer are as attractive as they appear on paper," says Sean Gardner from financial-comparison service

Susan Hannums from independent financial adviser Chase de Vere picks out the Save4It account from the Halifax, which pays 4.8 per cent, and the Lady- bird account from Saffron Walden building society, paying 5 per cent. Both have minimum investments of just £1.

For those who are more disciplined, she picks out another Halifax account: the children's regular saver paying 10 per cent.

"But this is far more restricted," she adds. "You have to make 12 monthly payments of between £10 and £100, and you can't make any withdrawals."

Money held in children's names will be tax-free as long as they don't breach the £4,895 income tax allowance.

But you will still need to fill in an R85 form to exempt them from tax. This is available from all banks, building societies and tax offices.

If you add to the account yourself, any annual interest earned on your contributions that tops £100 will be taxed at 20 per cent - and deducted from your child's account.

You can get round this by asking friends and family to make contributions; all interest is then tax-free.

Another option is a tax-free savings plan run by a friendly society. You have to invest a lump sum - say £25 over a minimum of 10 years - and cash it in, or reinvest it, when the plan matures. But these schemes can carry high charges.

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