How you can make money a great gift for a child

Cash need not be a cop-out. It can be as thoughtful as any other present, says Stephen Spurdon

Giving money as a Christmas present to a child can seem a bit of a cop-out. But there are ways of making it more meaningful, imaginative even, depending on how you do it. A money gift can serve to help provide a nest egg for a child, as well as perhaps getting them more involved in thinking about savings and investment from an early age.

Giving money as a Christmas present to a child can seem a bit of a cop-out. But there are ways of making it more meaningful, imaginative even, depending on how you do it. A money gift can serve to help provide a nest egg for a child, as well as perhaps getting them more involved in thinking about savings and investment from an early age.

There is a range of products designed for children from banks and building societies, fund managers, friendly societies and National Savings & Investments (NS&I). It is even possible to start a Stakeholder pension for a child from birth, contributing up to £2,808 a year - which, with tax relief, adds up to £3,600 invested.

The Government's Child Trust Fund will be available from April 2005. This only applies to children born on or after 1 September 2002 and allows a tax-free investment of £1,200 a year up to the age of 18 on behalf of the child.

Banks and building societies offer child-specific savings accounts. Conditions vary according to the amount saved and the term. MoneyFacts' website (www.moneyfacts.co.uk) shows that the top-paying instant access accounts on 3 November 2004 were Alliance & Leicester's First Saver, paying 5.5 per cent AER from £1, and Halifax's Monthly Saver, paying 5.5 per cent AER from £5.

National Savings & Investments also offers the tax-free Children's Bonus Bond, on which it recently upped the limit to £3,000 an issue. Held in the name of the child, under the control of a parent or guardian until the child is 16, the bonds can be opened with as little as £25. The current issue pays 4.45 per cent compound interest when held for five years.

Ordinary and Investment accounts from NS&I can be opened for a child from birth at the Post Office. They pay out gross and the liability to tax is on the child's annual allowance only. The account can be controlled by the child themselves from the age of seven -the age from which a child can have their own bank account.

While a cheque-guarantee card is not allowed until the age of 18, some banks offer access through cash cards. The Co-Operative Bank's Bonus Account pays interest and a bonus annually to the age of 18. A cash card is provided from the age of 11, and the account is linked to the wildlife conservation charity Born Free, a donation going to it when an account is opened.

Children are excluded from taking out tax-free Isas until the age of 16, when they can save through a mini cash Isa. Full Isa investment is only available from the age of 18. A range of fund managers and friendly societies have child-specific offerings with tax advantages. Each child has a tax-free friendly society allowance of £270 a year. Most friendly societies offer child-specific 10-year investments in either with-profits or managed-fund investments. Fund managers also offer savings plans for children. These include investment trust managers Witan, Scottish Investment Trust, Foreign & Colonial and Baillie Gifford.

Apart from trusts and other tax shelters, it is worth bearing in mind that money gifts made to children can have tax implications. If a parent gives money to a child and the income from the savings is more than £100 a year, then it is treated as the parent's income.