Christmas is coming and maybe you are running short of ideas – and time. Well, money is always a possibility and never unwelcome.
Dress it up in some nice Christmas clothes by all means, but I never recommend gift cards. More than £300 million a year given on cards is lost or forgotten about, or just disappears as cards expire after 12 months or two years.
Read more about the risks of giving gift vouchers and gift cards
The best voucher says ‘Bank of England’ and is always welcome, never languishes in a drawer and is universally accepted. But remember – never give away money that you may need yourself later in the year.
Money in the bank
Financial lessons learnt as a child tend to stick with us for life. A savings account helps children to find out about saving – and spending. Banks and building societies give better rates to children than to the rest of us.
Lesson one for them is that some accounts come with strict rules. Nationwide Smart Limited Access account pays 2.25% but the rate plunges to 0.25% if more than one withdrawal is made in a year.
Other top rates are on accounts where money has to be paid in each month. Perhaps the rules are just a good way to teach children about how banks work. HSBC My Savings offers 3% with no strings.
Interest earned by money given to a child by a parent will be taxed as the parent’s income once it exceeds £100 in a year. That can be avoided by opening a Junior ISA account where all interest is tax free.
Read more about tax and gifting money to children
The top accounts are Nationwide Smart Junior ISA and Halifax Junior Cash ISA at 3%. You can put up to £4,080 into a Junior ISA this tax year. So once it is opened get family and friends to pay in too.
Or buy the child a fixed-rate savings bond. Rates change, so check the latest at savingschampion.co.uk or call 0800 321 3581; at the moment, depending on where you invest, you can get more than 3% a year over five years and 2.7% a year over three years.
Remember early withdrawals are penalised. Money cannot be taken out of a Junior ISA until age 18.
Explaining the seven types of ISA
You’re never too young to start a pension!
One of the problems with opening accounts for kids is that once they reach their mid to late teens the money is theirs and they can do what they like with it. So if you think maybe they won’t be that responsible until they are, say, 55 years old, why not buy them a pension?
You can put up to £2,880 into a pension for a child and the Chancellor will play Santa too by adding 25% to whatever you put in. So if you put in £100 a month it magically becomes £125. The best place for it is probably the lowest-cost fund you can find that tracks the FTSE all share index.
One of the cheapest is from Fidelity but you need a single contribution of £1,000 or £100 a month to start one. Go to fidelity.co.uk and search ‘junior SIPP’ or call 0800 414161. The charge is £25 a year plus the tracker charge of 0.06% of the fund.
There’s no minimum investment with the Hargreaves Lansdown platform: the Vantage Junior SIPP costs 0.45% a year plus 0.07% for a low-cost tracker (0117 980 9926). You will need the child’s parent or guardian’s cooperation to set up a SIPP.
The complete guide to giving gifts to grandchildren
The safe way to gamble
I am not a gambler – but I do like money in Premium Bonds. You can buy the bonds for under-16s only if they are your child, grandchild or great-grandchild.
Parents and guardians can buy them online at nsandi.com. Older generations must do it by post: download the form online or request one by calling 0500 007007, then post it back with a cheque. All correspondence and any prizes go to the child’s parent or guardian. At 16 the child takes over and can cash the bonds in or keep them.
You have to buy at least £100-worth, which would be likely to win a £25 tax-free prize only once every 20 years or so. But at least the money is safe and easy to get at.
Precious metals for investors and collectors
No one can be left unmoved when they hold real pure gold. There is something about the weight, the colour and the feel that makes gold very special.
It is not necessarily a good investment as the price is very volatile and it may be worth a lot less – or a lot more – this time next year.
When you buy a small amount you pay a very hefty premium over the metal’s value. One gram of pure gold is worth £24.38 but the Royal Mint sells 1g bars – which are an entry-level investment and really tiny – for £53.52 which is an 80% mark-up. Prices change by the minute and were accurate when I wrote this (and updated December 9, 2016).
Read our guide to selling gold and precious metals
If gold is a bit pricey for your budget, silver is a lot cheaper.
Nicer than gold bars or silver coins is that icon of UK coinage – the gold sovereign. The Royal Mint’s 2017 sovereign with Benedetto Pistrucci’s original St George and the dragon design and the Queen’s portrait comes in at £242.89. Or you can buy a second-hand sovereign from a reputable dealer for less than £200 – and you won’t pay much more for a Victorian one more than 100 years old. Try atsbullion.com (020 7240 4041) or coininvest.com (020 3695 0335). You can check gold prices live at goldprice.org.
Help for students
Student life is more expensive than ever, so why not consider paying for something specific? Perhaps accommodation fees for a term – though there may not be much change from £2,000, depending on where and in what style the student lives.
How to help a student out financially
A piece of essential equipment such as a new laptop would be rather cheaper and should last longer. On a lower budget there is always the 16-25 Railcard, which costs just £30 a year (or £70 for three years) and saves one-third off the price of most rail tickets. You’ll need the individual’s passport or driving licence plus a digital photograph. Then, of course, there is cash – always welcome among students.
Will you get taxed on the money you give to your children?
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