In view of the historic better performance of equities over cash and bonds in the longer term, it is perhaps surprising how many people save for their children in cash savings accounts. Parents may also be surprised to find out that they may be taxed on any income over £100 p.a. on children's savings where the capital came from them. 

As an interesting alternative, did you know that a minor may have a stakeholder pension, and receive tax relief at the basic rate on the contributions? For every £78 contributed, the Government will contribute £22. The projections are attractive, but of course the term means that benefits cannot be taken before age 55. Nevertheless, this scheme has proved popular, particularly with grandparents concerned about their grandchildren's pension prospects.  

Child Trust Fund (CTF)

This Government initiative is designed to give every new child in the country a financial head start when they reach the age of 18. Every child born after September 1, 2002 will receive at least £250 in vouchers to invest in a CTF tax-free savings account. Children in lower income families may be eligible for a further £250 payment. There will also be a government top-up at the age of seven (the amount has yet to be confirmed). Child Trust Fund accounts have been available to receive the Government money and family contributions since April 2005. 

Importantly, family and friends may also contribute to the CTF plan on behalf of the child - up to £1,200 per year - making it capable of returning a substantial sum by the time the child reaches 18. The investment grows in a tax-free environment and there is no tax to pay at the end.

Some of the obvious uses might be:

• Funding further education
• A deposit for a first home
• Buying a car

£250 may not seem to be much now, but the important thing is to start – you can always add to it and it’s tax-free.