Five Financial Gifts for Christmas
Posted by Adrian Lowcock in Portfolio management category on 12 Dec 19
With Christmas fast approaching, many parents will be busily trying to fulfil their children’s wish lists to Santa, but parents may want to do something more than simply add to the pile of toys in their children’s’ bedrooms.
Whilst it is great to see the excitement on Christmas Day, sadly the novelty soon wears off from many presents.
A financial gift is unlikely to have the same response on the day but unlike other presents, these are gifts that are likely to be more enduring and could be worth much more in the future.
With so many investments out there at Christmas, it can be hard to know what exactly to buy for children to give them a financial boost over the long-term.
Below, we review some of the most popular financial gifts and why you might consider buying them for children.
Gold & Silver coins
As an investment, Gold is difficult to value as, unlike investing in companies which produce valuable goods and services, Gold does not produce anything physical, neither does it generate an income, but it continues to be in demand by investors in times of crisis.
Gold and Silver coins provide a combination of a valuable investment whilst being something to appreciate and admire. There are many coins to choose from ranging in age and value, with some more collectable than others. There are even a range of coins representing children’s characters - this year the Royal Mint issued its second “The Snowman” collection.
As with any investment it pays to do your homework about what might be a good collectible to buy for the long term.
Putting some money into an ISA might not be at the top of everyone’s letter to Santa, but in years to come that money may grow into a significant sum. A parent or guardian can set up a Junior ISA
, for a child and contributions of up to £4,368 can be made to the account during the 2019/20 tax year. The money can be placed in cash or invested. Of course with investing there can be no guarantees about future returns but a lump sum of £4,368 placed into a Junior ISA when a child is born would have more than doubled in value by the time they turn 18, assuming it grows at 5% per annum after charges. That means it could be worth over £10,000. Additionally, this helps to encourage an interest in savings and investing at an early age which is a habit that is better developed sooner rather than later.
Anyone over 16 can buy Premium Bonds in their own name, however, relatives can also buy them on behalf of under-16s. The minimum purchase is £25 worth of bonds with a maximum holding of £50,000. Premium Bond holders enter a monthly prize draw, and every month each bondholder has a chance of receiving a tax-free prize of between £25 and £1m. The odds are not great - the chances of winning anything per £1 of bonds are 24,500 to 1, and 41 million to 1 for the top prize of £1m.
The annual prize fund is currently calculated based on an interest rate of 1.4% tax-free. However, bear in mind that any prizes are down to luck and holders may not win anything.
Premium Bonds are backed by the Government so there is an implicit guarantee of protection for investor’s capital. Visit National Savings and Investments for more information.
Cash savings accounts
Dedicated children's savings accounts often boast the most generous interest rates on the High Street and online.
For example, Nationwide offers an instant access account for children up to the age of 15 which currently has an annual equivalent rate (AER) of up to 3%, and can be accessed from as little as £1. The interest is paid on the annual anniversary, although it is worth noting this particular one is a linked account so has eligibility terms attached.
These accounts hold money in a child's name and can be good way to encourage children to save.
Junior Self Invested Personal Pension (SIPP)
If the Junior ISA allowance has been used up, parents taking a long-term view may also wish to consider a Junior SIPP. Up to £2,880 can be contributed into a SIPP for a child in the 2019/20 tax year and this is boosted to £3,600 by tax relief. The investment grows free of income and capital gains tax and would only be accessible when they turn 55 (expected to increase to 57 from 2028). Given the long-term nature of the Junior SIPP it may be worth considering investing in funds which offer diversification and which do not require constant monitoring.