MOST of us have at least one child to buy Christmas presents for this Christmas – whether it’s your own offspring, a family member, friend or godchild.
The temptation to spoil can backfire when they get overwhelmed on Christmas Day. Plus, when it comes to toys, the amount of plastic isn’t doing the environment much good.
So why not do something longer term that they will thank you for one day, when they hit adulthood and need driving lessons, help towards university maintenance costs, or a deposit for a house.
There are numerous ways in which you can gift a nest egg for children. Banks and building societies heavily market children’s savings accounts, which often come with much better rates of interest than those for grown-ups.
But a savings account might not be the right choice for a long-term commitment. Historically, stock-market returns outperform cash over the long term. Since a cash gift for a youngster won’t be touched until they’re at least 18 there’s a good argument for investing your gift.
Here are the choices from savings accounts, ISAs and even pensions for kids. There’s also the chance to turn your £25 gift into £1 million.
Junior ISA
There is a junior version of the tax-free ISA, into which you can save a set amount in each tax year. This year it’s £9,000 and there is no tax to pay on capital gains. A Junior Isa, like the adult version, can hold cash as well as a variety of investments, including individual stocks and funds.
For the price of the latest Lego set or video game paid into an Isa every Christmas (£100), kids would have just over £3,000 on their 18th birthday. Anyone can pay into it but it will need to be opened and managed by the child’s parents.
Junior SIPP
A pension might seem an absurd concept for someone who is perhaps still learning to walk or read and write, but the tax perks are compelling. It is possible to invest up to £3,600 per year into a self-invested personal pension (Sipp) from the day a child is born.
Thanks to the tax breaks that come with saving in a pension, this means actually investing £2,880 – or £240 a month – with the balance being automatically reclaimed from HM Revenue & Customs. Saving £100 each Christmas for 18 years would give a pot of £3,692 including any tax relief gained, according to calculations by AJ Bell.
There is no minimum age so a Junior Sipp can be started from the day the child is born. Unless you’re the parent, you might need to hand Christmas cash to the child’s mum and dad who can invest the money on your behalf.
Savings accounts
HSBC offers one of the top rates on a child’s account without any opening restrictions, with its MySavings paying 2.5% monthly on an opening deposit of £10. Once the account is open, anyone can pay in.
Premium Bonds
Rather than being paid interest, bondholders are entered into a monthly draw with the chance of winning tax-free prizes ranging from £25 to £1 million. The minimum investment has this year dropped from £100 to £25 which means it’s a more accessible gift. Anyone can buy bonds directly as long as an account is set up and you have the bondholder number. There is a month’s delay before bonds are included in the draw, so if you buy in December, the first chance to win is in February.
Can’t resist splurging on goodies?
You might not want to go cold turkey on buying gifts for the small people in your life and resolve to buy fewer presents and contribute some money as the main gift. To make sure your money goes further on gifts this Christmas, follow these three tips:
1 Comparison websites aren’t just for platforms
Use the likes of Pricesearcher.com that compares prices across retailers. For example, a Ring Video Doorbell in satin nickel cost £89 at Argos compared with £160.20 at website Fruugo.
2 Get paid to shop using cashback websites
It really is possible to earn as you spend, using cashback websites such as Topcashback.co.uk and Quidco.co.uk. These websites pass on some of the bonuses they get for generating lots of sales to retailers large and small. Quidco says that on average its active members pocket £300 each a year. Just don’t be tempted to overspend to “earn” more.
It’s a good time to sign up as offers get more generous over Christmas. New customers signing up to Topcashback.co.uk will get 100% cashback up to £15 when they shop with a retailer listed under the toy category on the site. Brands include Early Learning Centre, Lego Shop, Hamleys and Amazon.
3 Use credit cards that pay with every tap
If you’re going to be spending anyway, you may as well get something a little extra on top. There are cashback cards which pay a percentage of your spend. The cash is usually credited to your account once on the 12 month anniversary so spending for Christmas 2019 will land in time for Christmas 2020. Alternatively there are cards that offer points in exchange for vouchers for supermarkets or high street retailers. Look on moneyfacts.co.uk for the best card for you.
