If you've got some Christmas present money to stash away on behalf of your children, is it possible to find a profitable home for it via the internet?
The short answer is that you or your child can get a lot of useful information from the net on the various deposit accounts and equity-based investments aimed at young savers. But I've yet to come across any providers whose websites allow you to open an account or buy into a fund online.
Bank and building society children's accounts, which usually offer free gifts and magazines to tempt children, provide a useful home for smallish cash gifts. Children from age seven can get an early introduction to the savings habit by operating their own account, which they can add to with pocket money deposits and make withdrawals from. Parents generally need to open and operate accounts for younger children.
The financial search site www.moneyworld.co.uk is a useful place to start. Here you can quickly call up the best high street rates available on children's accounts. Unfortunately, by sticking to a short list of major providers, it doesn't paint a complete picture.
Missing are some high interest paying children's accounts offered by smaller building societies such as Lambeth's new Cat's Whiskers instant-access account which is paying an attractive 6.5% gross on deposits of £100 or more. It also misses out those societies offering good rates to children of local residents such as the Saffron Walden's Ladybird account, currently paying 6.4% on £1 or more.
For a fuller list of children's account providers, you'll have to leave your screen and pop down to your local library for a look at the rates tables in Moneyfacts' monthly guide to personal finance or call Moneyfacts, whose website is still under construction, for a one-off complimentary copy on 01603 476100.
The best high street buy just now is Nationwide's Smart 2 Save account, which is open to children up to age 12 and is paying 6.4% on deposits of £1 or more. Nationwide's website on www.nationwide.co.uk wins my vote as one of the clearest and most straightforward to use with particular merit for aiming certain screens directly at children. Clicking the "young savers 0-12 yrs" icon brings you directly into details of Smart 2 Save including the option to click on "I'm 7 or over and I want to do it myself".
Up comes a child-friendly screen explaining that, to open an account, the child will need to come into a branch armed with at least £1, their birth certificate, proof of their address (such as a gas, electricity or phone bill to your parents' address) and a completed application form. They can click on an icon to e-mail for a form sent by return of post and ask any questions they fancy.
This screen also waves the account's freebie carrots under your youngster's nose. Their welcome pack will include a wallchart, money box, a pencil with a monkey eraser and free entry to one of a range of zoos and other family attractions if they go with a full paying adult.
Also attractive to kids is the facility to click on to the Monkey House, a screen which tells young browsers about Nationwide's sponsorship of the Tamarin monkeys at London Zoo. Users are invited to e-mail their questions about monkeys and send in drawings, some of which will be reprinted on the website.
Lambeth's website on www.lambeth.co.uk is also clear and attractive. Click on the first item on its first screen and up comes full details of its Cat's Whiskers account illustrated with moving images of domestic and wild cats.
I had a frustrating time trying to download an application form and make a request for literature to be sent, but was assured by head office when I rang to query this that the problem was rare. "It's a problem with the server. There's a break in the link somewhere and we are on to them to sort it out. It's best in the meantime to ring our freephone number on 0500 200020." You can normally download and print off an application form in seconds, they said, which you fill in, sign and send by post.
This is the best method most children's account websites offer. So why can't you open an account online? Lambeth says it's all to do with money laundering regulations which make it mandatory for providers to physically see proof of identification when a child, or an adult for that matter, wants to open a savings account. Nationwide, on the other hand, says it can open card-based accounts online but it makes no sense to offer online opening of passbook type accounts, including children's accounts, because all transactions thereafter have to be carried out through a branch in order to update the passbook.
Whatever the reasons, you can't yet open a children's account on screen. But you can make an online request to be sent literature and an application for accounts on most societies' websites. This includes Coventry's Interest Zone account (www.covbsoc.co.uk), Bradford & Bingley's KidZone account (www.bradford-bingley.co.uk) and Birmingham Midshires' SmartStart account (www.birmingham-midshires.co.uk).
Most children are non taxpayers because they earn less than the annual personal tax allowance of £4,335. They also have a capital gains tax allowance of £7,100. So, they don't have to pay income or capital gains tax on their sav ings and investments. To get tax-free gross interest paid on a child's bank or building society account, you will need to register them as a non-taxpayer by filling in form R85. This will normally be included with the application form.
A child's tax-free amount depends on who gave them the money to invest in the first place. If it comes from anyone other than the parents, it is treated as their own. But if it comes from a parent, only the first £100 is tax-free. The rest is taxed at the parents' highest rate.
For wealthy kids with sizeable cash gifts to invest over the longer term, it's worth looking at pooled equity-based funds like unit and investment trusts, a few of which are marketed for children. These are not so attractive for small investors because of costly charges and relatively high minimum investment rules - most such savings vehicles demand a minimum of £50 a month or a lump sum of £500.
Giant fund manager M&G has recently issued a free guide Investing for Children, a copy of which you can request online via its website on www.mandg.co.uk or by calling 0800 210 200. The website offers a clear guide to M&G's 40-odd unit trusts - but, again, you cannot invest online. You can download and print off an application form to complete and send in by post, but it is quicker and easier to call M&G's dealing line on 0800 328 3196 where you can complete your transaction over the phone.
The same story is true for Save & Prosper's new website on www.prosper.co.uk which goes live this weekend. S&P have also published a new guide, Saving for Children, which you can order online or download and print off.
