Saving for baby

By THIS IS MONEY
Updated:

 

I would like to start a savings plan for my one-week-old granddaughter. What is the best option for savings £20 a month? RG, East Calder

Justin Modray at independent financial advisers Bestinvest says: You have two options: a cash-based investment or a stockmarket-based investment. Cash investments, such as a children's savings account or

National Savings Children's Bonus Bonds, are simple and safe but don't expect exciting returns.

National Savings currently pays 4.15% a year, fixed for five years whilst Alliance & Leicester pays 4.80% on their

'First Save' account. With inflation around 2.5% in real terms the returns are unlikely to make your granddaughter rich.

Investing in stockmarkets through a unit or investment trust is straightforward but, while returns might be higher over time compared to cash, the investment could fall in value. If the money is likely to remain untouched until your granddaughter is well into her teens then this route is likely to be the better bet.

You can open unit and investment trust investments in your name with your granddaughter named as a 'designated account

holder'. This means that although she will be the beneficial owner throughout, she can only switch the investment into her own name at age 18, so she cannot access the money without your permission until then.

Many unit and investment trusts have a monthly savings minimum of above £20, however M&G allow £10 monthly savings (unit trusts) and the Foreign & Colonial Investment Trust would be an option if you can stretch to £25.

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