t's a fair bet that sensible investments won't feature on many children's wish lists this Christmas. But if you want a present that doesn't lose its sheen come January, a savings account opened in the name of a little one will endure for years to come.
As the Government debates top-up university tuition fees and first-time buyers struggle to get a foot on the housing ladder, parents and grandparents who give their children a headstart before they can walk will one day be thanked for it.
With nearly a fifth of parents and grandparents planning to spend over £300 on their children's Christmas gifts this year, according to research from the Association of Investment Trust Companies (AITC), there are likely to be a few unwanted presents beneath the Christmas tree. "Many parents are recognising that some of the money spent on those quickly forgotten toys could be put to good long-term use," says Annabel Brodie-Smith at the AITC.
With the introduction of child trust funds (CTFs) in 2005, it might be tempting to wait before you begin a savings scheme. But the sooner you start, the more time there is to build up a big sum. And with children born before 1 September 2002 missing out on the CTF anyway, you will need to think about making some financial provision for them.
There is plenty of choice, with a number of accounts and investment funds designed specifically for children. But you aren't restricted to a child-only product. "You can invest in a regular unit trust and designate it in the name of the child," says Ben Willis at independent financial adviser Chartwell Investment. "When they reach 18, the money reverts to them."
The first thing you need to consider is what sort of investment you are after. Historically, equities produce better returns than a savings account. Fund manager Witan estimates that if someone had put £25 into its Jump fund each month for the past 18 years, the investment would be worth £10,895 today. The average return from a building society account over the same period is just £7,210.
Buying into stocks and shares via a unit or investment trust is a good choice for children as you are investing for the long term - so there is time to ride out the ups and downs of the market.
The Jump fund is popular because relatives or friends can invest as little as £25 a month or quarter, or a £100 minimum lump sum, on behalf of a child. There are no penalties for accessing savings and contributions can be postponed at any time. There is no initial or annual fee - just 0.5 per cent government stamp duty and a 1 per cent share-dealing charge.
Another plan aimed at children is the Scottish Investment Trust's Stockplan: A Flying Start, which invests in global equities. This also has a low minimum monthly investment of £25, or a £250 lump sum. There are no initial or annual management charges - just stamp duty - and withdrawals cost £10 plus VAT.
If you want to invest smaller amounts or simply don't want to risk the cash on the stock market, a simple savings account may be the answer. Most children's accounts require a minimum balance of as little as £1 and kids can add pocket money or cash received as gifts, encouraging them to develop a savings habit.
There are no charges to eat into savings accounts, either, while there is usually a gift. For example, Lloyds TSB's Young Savers account, for children aged up to 11, pays 3.75 per cent interest AER (annual equivalent rate). Although this is not as good as the best-paying children's savings account - Alliance & Leicester's FirstSave, at 4.55 per cent - kids get a Black Horse money box and a height chart.
It might not be as exciting as unwrapping the latest gadget, but one day the recipients will be very grateful.Reuse content