3 options for gifting money to children this Christmas
Chris Broome – Chartered Financial Planner
If you’ve yet to finish your Christmas shopping and simply don’t know what to buy for a child, a financial gift can last far longer than the latest fad. It might not be as exciting as unwrapping a toy, but at a time of year when they’re going to receive plenty of presents, money can be the perfect gift.
As a parent, you may have already purchased some presents and know they have plenty to keep their attention over the festive period. Giving money at Christmas can mean the gift can be useful in the coming months or even saved until they’re an adult.
Your child may also receive money from family and friends who aren’t sure what to purchase too. Last year, 45% of Brits planned to give cash as a Christmas gift, according to research from the Post Office. While children may be eager to spend it in the sales, putting some of it away for a rainy day can be beneficial.
Whether family and friends have gifted money, or you want to set some aside rather than splurging on toys, here are three options you may want to consider.
A general savings account in a child’s name is a great option if you want flexibility.
Adding Christmas money to a savings account means it’s there for when they want to use it later, whether that’s to buy a toy in a few months, pay for a school trip or save it. It’s a step that can help instil good money habits and show how saving can mean gifts can add up.
While interest rates are low, children’s accounts are typically more competitive than their adult counterparts. So, it’s worth shopping around to get the most out of their money. Accounts with restrictions will usually offer the highest interest rates. Restrictions may include limiting withdrawals and contributions. Make sure any account you pay into gives you the flexibility you need.
Start building or add to a nest egg by adding Christmas money to a Junior ISA (JISA). It might not be as fun as the latest toy, but they’ll really appreciate it when they’re older and can use the money for university, buying a car or travelling.
A JISA is an option when you want to save for the future. The money won’t be accessible until the child turns 18, at which point they can use it how they wish. Adding to a JISA can help make reaching milestones and goals as a young adult easier. Each tax year, you can add up to £9,000 to JISAs per child. It can add up to a sizeable sum for their 18th birthday.
If you plan to add Christmas gifts to a JISA, the first thing to consider is the type of account. You can choose from a Cash JISA and a Stocks and Shares JISA.
With a Cash JISA, the account will benefit from interest. Like savings accounts, Cash JISAs usually offer higher interest rates than standard ISAs. So, searching for a competitive rate is important. However, you should keep in mind that current interest rates are unlikely to keep pace with inflation. As a result, the savings can fall in value in real terms.
A Stocks and Shares JISA will invest the money. This gives the gift an opportunity to grow at a faster pace. But it also comes with investment risk. The money will experience volatility and could fall in value. The time frame is an important consideration when investing. You should plan to invest for a minimum of five years, as this provides a chance for volatility to smooth out.
If you’re not sure which JISA account is right for your plans, please get in touch.
A different option to consider is purchasing Premium Bonds. Anyone can buy Premium Bonds for a child and they can hold up to £50,000 worth.
Premium Bonds are the UK’s biggest savings product, with around £88 billion saved in them. But they work differently to your usual savings products. Rather than paying out interest, Premium Bonds are entered into a prize draw each month. The more bonds you buy, the more times you’re entered into the prize draw. Prizes range from £25 to £1 million. When you withdraw the money, you’ll get back the same amount you deposited.
So, while Premium Bonds are advertised with an average interest rate, you’re not guaranteed this. In fact, most people will receive less than the rate advertised, but there is a small chance you’ll receive a larger prize too. Whether it’s the right choice for your child’s savings will depend on your goals.
Christmas gifts can be used to start a nest egg, but you may also want to make regular contributions. Setting aside money for children can mean they have a helping hand as they reach adulthood.
Please get in touch if you’d like to discuss how you can create a savings or investment plan for your children.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
The Financial Conduct Authority does not regulate National Savings & Investment products.