Santa Gets Sensible

Jane Baker takes a look at sensible gifts for children this Christmas

If you fail to see the value of the latest Nintendo Wii game or the Doctor Who Dalek Sec Hybrid Voice Changer Mask (it's a best-seller apparently) what can you do if you want to buy the kids in your life something a little more sensible this Christmas?         

Perhaps you think your nieces, nephews, grandchildren or godchildren already get quite enough 'fun' presents from their parents. If this sounds like you, there are some excellent, practical alternatives.

You can now pay into a range of financial products on behalf of a child, giving you the opportunity to help set them up for the future.

One option is to top-up their child trust fund (CTF). Every child born after the 1st September 2002 qualifies for a CTF which is opened with at least £250 from the government (£500 for low income families) and may invest in cash or shares. Family and friends can add up to a further £1,200 each year. Best of all, this money is tax-free and won't mature until the child reaches 18.

If you're worried kids might blow their savings at 18 then consider a pension instead. With a pension, the kids' money will be safely locked away until they reach at least 55 (the minimum retirement age which applies after 2010). They should be able to handle the cash sensibly by that time!

You can invest up to £2,808 into a stakeholder pension for a child each tax year. In addition, the government currently gives a £22 tax rebate for every £78 you contribute which means the maximum amount of £2,808 turns into £3,600 with tax relief!

Investing in a pension as early as possible is the best thing you can do, giving the fund plenty of time to grow. By starting when children are young it will give them a fantastic head start in providing for their retirement.

If the children on your Christmas list already have a savings account then you'll be able to make cash gifts to those as well. As long as the interest they earn falls below the personal tax allowance -- which is £5,225 for this tax year -- it won't be taxed. Children can also earn tax-free interest of up to £100 per tax year on savings made by a parent.

Alternatively, if you're a parent or grandparent you can buy premium bonds for the kids. The minimum purchase is £100 up to a maximum of £30,000. The draw takes place every month for prizes starting at £50 up to the £1 million jackpot. What's more, prizes are tax-free and the chance of a big win might up the excitement stakes!

These are just a handful of sensible gift ideas for kids. The chances are they won't jump for joy over their new pension or be particularly pleased you have put money in their CTF instead of their sticky little mitts, but at least you'll know you have done something good for their future. Let's hope they'll thank you for it later!

Visit The Savings Centre to compare some great savings accounts! You can also get more information from a range of savings for kids brochures.