Almost two-thirds of us plan to give financial gifts this year, AJ Bell research shows, and these could be as simple as writing out a cheque or strolling to the nearest ATM. If you don’t want to leave the house you can sort them out online, and save yourself a lot of last-minute stress.
Cash, bank transfer, Premium Bonds or gift cards are just some of the options for children or grandchildren at this late stage, said Laura Suter, director of personal finance at AJ Bell. “For tricky-to-buy-for teenagers, financial gifts can be a quick and easy option.”
They may not be the most inspired gift options, but you won’t find many people complaining about getting money, especially at the moment. Here’s how to give it.
Cash. In today’s digital world, stashing a £20 note in a Christmas card feels a bit old school, particularly for younger people, Suter says. “They can spend or save it, but it can’t be used online without transferring it to a bank account, which is a hassle.”
Another risk is that it gets lost among the Christmas wrapping paper.
Cheque. The big advantage of a cheque over cash is that it can be rewritten if lost, Suter said. “Many young people probably don’t know what a cheque is or how to pay it in. The danger is they never get around to doing it.”
Bank transfer. One in seven plan to directly transfer money into a loved one’s bank account, Suter said. This will never win any prizes for originality, but at least the money will end up where intended. “Given the cost-of-living crisis, it could be warmly welcomed by many.”
Gift cards. Digital gift cards are taking over as more people live their lives online, with one in three planning to give them. “They can be used to buy a book on a Kindle, a digital-only computer game or get credits on online gaming, as well as high street and online shops,” Suter says.
She describes them as “a halfway house between a present and cash”. “Because it’s tied to a particular shop, people have to buy something nice with the money, whereas cash could just go on the weekly food shop or energy bill.”
The big risk is that gift cards get lost or forgotten. “Another danger is that the retailer goes bust.”
Premium Bonds. More than 22million people hold Premium Bonds, yet only three percent plan to gift them this Christmas.
Suter said they have their charms, as you can save as little as £25, they are backed by the government and couldn’t be safer. “Plus there’s a chance the recipient could win one of two monthly £1million jackpots.”
The current prize rate – what you will win each year with average luck – is a decent 4.65 percent but may fall next year if the Bank of England cuts interest rates. “The risk with Premium Bonds is that the holder may win nothing at all,” Suter said.
Another danger is that if one child or grandchild wins a big prize, their siblings might feel resentful.
Savings account. Many families like to set up a savings account to get children into the habit of putting a little money away.
Grandparents cannot set one up themselves, as a parent is required, Suter said. “Keep an eye on the interest rate, as banks have a nasty habit of slashing rates.”
If the child is young and a has a long time until they’ll need the money, you should think about investing, she added.
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Junior stocks and shares Isa. Many people worry about buying stocks and shares on behalf of children, but they make good investors as time is on their side and they can look past short-term volatility.
Investing £25 a month from birth to 18 would generate £7,235 in a savings account that paid an average 3 percent a year, but £10,914 in an investment fund that returned 7 percent a year after charges. But there are no guarantees with shares, though, and capital is at risk.
With a tax-free Junior Isa, children cannot access the money until they turn 18. At that point it belongs to them. “The risk is that they cash it in and go on a spree.”
Junior self-invested personal pension (SIPP). Investing in a pension on behalf of a child may seem daft, but there are benefits. You can invest up to £2,880 a year and tax relief will top it up to £3,600, even if you don’t pay tax.
A self-invested personal pension (SIPP), sold by fund platforms such as AJ Bell, Bestinvest, Hargreaves Lansdown and Interactive Investor, gives you control over where the money is invested.
Alice Haine, personal finance analyst at Bestinvest, said few children will have a pension on their Christmas wish list but they may thank you for it one day. “The money will be locked away for decades and will have plenty of time to grow.”
If you paid £3,600 into a SIPP on the birth of a child it would be worth £358,426 by their likely retirement age of 68, assuming it grows at 7 percent a year. Even after inflation, it should still be worth a tidy sum.
Whatever you choose, do not delay. Christmas is almost here.
