Many parents, grandparents and relatives will be looking for gifts to give to their children this Christmas.
With seven in ten parents worried they aren't saving enough for their children's future, why not help them get ahead this Christmas?
Initially, parents can save for their child and then hopefully encourage them to save at least some of their pocket money when they are old enough.
An added benefit is that this helps children understand the value of building personal savings for something special.
We look at the best ways to put money aside for your children for the future – and give them the best possible return.
A Christmas gift for the future: Giving cash can be an excellent option during the holidays
Junior Isas
Junior Isas replaced Child Trust Funds in 2011. This allows parents to save tax-free for their children up to the age of 18.
You can save up to £9,000 in a Junior Isa in the 2023/24 tax year, which ends 5 April 2024.
Tax is not usually payable on children's accounts unless the child has an income in excess of the personal allowance of £12,570 in one tax year.
If you, your friends and family could give a total of £9,000 a year to a child, which is the current Junior Isa benefit, at a rate of 5.49 per cent (the current best Junior Isa rate, from Bath Building Society ), you could give them almost £265,000 when they turn 18.
No withdrawals are permitted from Junior Isas until the child's 18th birthday, except in the event of death or terminal illness. From the age of 18, only the child can withdraw the money.
Rates on cash Junior Isas are better than on standard savings accounts. A selection of the best are below and you can view all the best Junior Isa and child savings rates here.
Just like with a normal Isa, the Junior version also has a cash and share option where you can invest in funds and investment companies.
Research from industry body Association of Investment Companies shows that if a parent, grandparent or guardian had invested a one-off £1,000 in the average investment company for a child 18 years ago, it would now be worth £4,803. That is an annualized return of 8.3 percent.
For example, if they had made a monthly contribution of £50, their total investment of £10,800 over 18 years would now be worth £27,530.
Most DIY investment platforms offer a Junior Isa. Look for low-cost companies that fit the way you plan to invest and provide all the help you need.
>Read our guide on how to save and invest for your child's future
Savings accounts for children
Savings accounts for children are essentially the same as those for adults and are offered by a handful of banks and building societies.
There are a few differences, but they are mostly simple, secure cash accounts that usually pay some interest.
Much of the difference comes down to marketing. However, there are some quirks of the deals that make them more suitable for younger savers.
You can open a savings account for each child up to the age of 18 for just €1. In order to set up a children's savings account in your child's own name, your child must be seven years or older.
Opening a savings account can be a good way to get children into the habit of saving from an early age.
For example, if you donate $100 a month to an account that pays 5.8 percent, which is what you can currently earn in a regular savings account for children, your child could have more than $16,100 after ten years — or more than $37,500 after that. 18 years.
Anna Bowes, co-founder of savings experts Savings Champion says: 'The sooner you start saving, the better for your child. By putting some of theirs away when they are born, they could very well have a significant amount of money to pay for college or perhaps the down payment on their first home.
'If you have friends and relatives who want to save for your children, consider asking them to contribute to a standard children's account (or cash Isa if they are 16 or 17).
“As a parent, you can put cash into the most tax-efficient vehicles for both your child and yourself, regardless of who contributed and how much interest is earned.”
What about taxes?
Like adults, children have a personal allowance for income tax – £12,570 for the 2023/24 tax year.
If their annual income (including savings interest) is lower than this amount, they do not have to pay tax on it.
Parents and guardians should be aware that once the amount they have gifted to their children starts to grow, there may be a tax liability to be aware of if the money falls outside a Junior Isa.
Children have their own personal allowance, so for the most part no tax has to be paid on their savings interest. Parents may owe taxes on the interest they earn on the money they give to their children until they reach age 18.
This even applies to interest on cash gifted by a parent and deposited into an adult Isa in the child's name. Adult cash Isas can be opened from the age of 16, although not all providers accept under-18s.
Importantly, the minimum age will change to 18 from the new tax year, so parents and guardians should act quickly to take advantage of this.
Bowes explains: 'If the total gross interest earned on all cash donated by each parent is more than £100 per year, then this whole amount, and not just the excess, will be treated for tax purposes as the interest of that parent and therefore they may need to pay tax at their marginal rate – if this puts them above their personal allowance or personal savings allowance.'
'If the gross interest earned is less than £100 for each parent's gift, this is considered so minimal that parents do not have to declare it.'
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