The best festive saving choices for children

Premium bond, pension, Junior Isa - or something else completely? Which is the best way to save for your child's future? Merryn Somerset Webb weighs the choices facing parents today.

A press release arrives. "Give the Christmas gift children really want," it says. "Money." Apparently some 64% of children aged 8 to 16 say that they would prefer to have money to an actual gift this year. Why? "They want to be able to get what they want rather than be surprised." How's that for lack of festive spirit?

The press release comes from an organisation called PKTMNY, which styles itself as a facilitator of "pocket money for the digital age" (seethis week's cover story for more on digital money) and so provides pre-paid Visa cards for children that parents can top up for them to use.

I'm not crazy about this idea. It seems to me that learning about pocket money with actual cash physical stuff that, unless you are the Bank of England, can actually run out gives a better learning experience than going straight into the land of cards and virtual money. If you disagree, want your children to set up a financial wish list and to get them a card, you can visit and do just that.

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If you'd like to give them money but in a slightly more long-term way, there are better options.The obvious one is premium bonds. However, I'm not sure I'd bother with these any more. The minimum purchase is £100 and the maximum holding £30,000 but, however many bonds you hold, the odds of you winning a million, or even £25, aren't that high (24,000 to one) and the overall average interest rate of 1.5% isn't exactly attractive (particularly if, like me, you never seem to see any payouts at all).

Another oft-quoted option is to give your child or grandchild a pension. You can pop up to £2,880 (boosted to £3,600 with tax relief) into a Junior Sipp (self-invested personal pension) or stakeholder pension for a child or grandchild. If you keep topping this up and it compounds as it should, it will give your child an amazing headstart in the retirement stakes. Figures from Hargreaves Lansdown suggest that if you put £300 a month into a pension from birth to age 18, and it compounds at 5% a year, your child will have £1.03m on retirement. But I'm not sure I'd do this either.

The pensions system sounds good, but it is stunningly expensive for the state (think £26bn in tax relief on pension contributions last year alone) and so likely to be fiddled with endlessly over the next few decades. That matters, for the simple reason that once you put money into a pension, you can't take it out you have put it at the mercy of the state (and its black hole of debt). That might be a good idea. But it might not be. Why take the risk with your children's or grandchildren's money?

The best option then is probably a Junior Isa (individual savings account). You can put up to £3,600 a year into these in either cash or shares (and unlike with an adult Isa, you can switch freely between the two). The tax benefits are the same as those for an adult Isa (no capital-gains tax within the wrapper, and no dividend tax beyond the 10% withholding tax everyone pays), and they can also be converted into adult Isas when your child hits 18. There's even a rather nice if short period when your child is between 16 and 18 when they are entitled to have both a Junior Isa and an adult cash Isa.

Finally, if you want to give a physical thing rather than virtual money, we would suggest, as we do most years, a gold coin or two. They're always nice to have knocking around however old you are. Suppliers include Baird & Co, ATS Bullion and Chard.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.