With the start of Chanukah, the best gift you can give to your children or grandchildren is a lifetime savings habit.
It may not be as exciting as the latest Playstation 5, but investing the £400 one costs to buy could turn it into almost £1,000 in 18 years, assuming 5 percent growth each year. If you invested £400 a year for the 18 years it could be worth more than £12,000.
Junior ISAs allow you to save up to £9,000 tax free in the current tax year to 5 April 2024, and you can choose to invest in either stocks and shares or cash or a combination of both.
The top cash junior ISA comes from Coventry Building Society and is paying 4.95 percent tax free. Next best is Loughborough Building Society at 4.8 percent, both on a minimum £1 investment. While a Junior ISA can only be opened by a parent or guardian, anyone can invest it in - meaning grandparents, other family and friends can all contribute. They are transferred into the child’s name at 16 but cannot be accessed until 18.
Alternatively a stock and shares ISA has the potential for greater returns over the long term. Which fund is best depends on your attitude to risk, but Dzmitry Lipski, Head of Funds Research at interactive investor suggests looking at Polar Capital Smart Energy Fund which focuses on innovative companies driving the decarbonisation and electrification of the future energy sector. Alternatively he likes Fidelity Special Values Trust which he says invests in unloved companies across various sectors in the UK which its team believe to be undervalued.
Although children are unlikely to be working, they can also have a pension in their name - either a junior SIPP (self invested personal pension) or a personal or stakeholder pension. These allow up to £3,600 to be invested each tax year and attract 20 percent tax relief as with adult pensions. This means you only need to invest £2,880 to reach the maximum limit with tax relief. The major difference is the amount of investment flexibility and choice each pension wrapper gives, with a SIPP giving the most. The downside is the money cannot be accessed until the child turns 55 (rising to 57 in 2028). Top providers of junior SIPPs include Fidelity, Hargreaves Lansdown, interactive investor and Bestinvest.
For shorter term investments, Mansfield Building Society is offering a 5.25 percent one year fixed rate account with a minimum £500 investment. If you want to invest regularly or encourage the recipient to do so, then Saffron Building Society has a regular saver account paying 5.8 percent for one year. Minimum savings each month is £5 and maximum £100. Halifax’s Kid’s Monthly Saver pays a slightly lower 5.5 percent for a year and minimum and maximum monthly deposits are £10 and £100.
Finally, for a bit more fun, while there are no guarantees of winning, NS&Is Premium Bonds claim a 4.65 percent prize rate on a minimum £25 investment and a chance to win £1 million each