Personal Finance: Money Q 7 A -No such thing as a children's account

I am thinking of giving my two grandchildren (aged 8 and 11) Christmas gifts of pounds 100 each to put in a savings account. I would also like them to have details of an account where I suggest they put the money. Are some accounts more suited to children than others?

AS, KENT

There is no such thing as a savings account particularly suited to children. You will find accounts and savings schemes marketed for children and some are reserved for the young: National Savings Children's Bonds (available through Post Offices) is one example. They pay 5 per cent tax free for five years and the minimum investment is pounds 25.

These may be an option to consider because fixing at 5 per cent could be a good move if (as expected) interest rates fall further in the next few years. Don't be seduced by children-only tags, or the marketing gimmicks of free piggy banks, magazines and other freebies. Look at the whole range of accounts, most of which are open to those under 18 and adults.

Don't pay too much attention to the tax-free carrot offered by National Savings or the long-term savings policies offered by Friendly Societies. In the latter case, high charges and poor investment returns can negate any tax advantage. In any case most children don't have to pay tax anyway because they can normally set interest against their own personal tax allowance - pounds 4,195 in the current tax year. (Make sure the grandchildren register to receive interest without tax deducted when they open an account. A bank or building society should give them the necessary Form R85.)

Ring Moneyfacts on 01603 476444 for a copy of their factsheet. Among the better rates nationally are Birmingham Midshires' Smartstart, paying 7.25 per cent on pounds 25 or more with instant access. Bradford & Bingley, Britannia, Coventry and Nationwide also offer good rates. Some smaller local societies also have good offers including the Cambridge Building Society and the Saffron Walden which both pay 7.25 per cent for pounds 1 upwards.

Write to the personal finance editor, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a phone number; or fax 0171-293 2096; or e-mail i.berwick@independent.co.uk

Do not enclose SAEs or any documents you wish to be returned. We cannot give personal replies, nor can we guarantee to answer letters. We accept no legal responsibility for advice given.

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