The Bank of Family: 5 ways to establish a child’s financial future this Christmas


Child saving in piggy bank on Christmas

As Christmas nears, you may have started to give some thought to what to give your children or grandchildren as a gift.

If you’re thinking about giving them a cash gift, then you’re not alone – a study from NatWest found that 32% of parents planned to give children money for Christmas last year, and this trend will likely continue in 2023. 

While you could give them the cash outright and let them spend it on themselves, it may be worth considering how you could use this gift to help them prepare for their financial future. 

Continue reading to discover five interesting ways to save or invest a cash gift for your child or grandchild this Christmas, ultimately setting them up for their later life. 

1. Save or invest it in any form of Junior ISA

A Junior ISA is a tax-efficient way to build a nest egg for a child under the age of 18. As a parent or guardian, you can open a JISA for a child below the age of 16, or they could start a Cash ISA themselves if they are aged between 16 and 18.

There are two varieties of JISA to choose from: 

  • A Stocks and Shares JISA – allows you to invest in a range of shares and funds on the child’s behalf.
  • A Cash JISA – allows you to save money for your child and accrue interest. 

As of the 2023/24 tax year, the JISA allowance – the limit on the amount you can contribute to the child’s account each year – stands at £9,000. You can mix and match the two types of ISA up to the annual subscription limit.

One of the primary benefits of a JISA is its tax efficiency. Indeed, any interest earned in a Cash JISA is free from Income Tax, and any profits gained in the Stocks and Shares JISA are free from Capital Gains Tax. 

Remember that the value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested.

Even though your child won’t be able to access the money in their JISA until they reach the age of 18, after which their ISA is upgraded to an adult version and their yearly allowance rises to £20,000, there are no restrictions on withdrawals after this age.

This means that the child can decide what they use their savings on, such as buying their first home or funding further education.

2. Help them prepare for the future by saving it in a Lifetime ISA

If your child or grandchild is above the age of 18 and you wish to give them a cash gift for Christmas that they can eventually use for the deposit for a home, then a Lifetime ISA (LISA) could be a wise choice. As well as your contribution, they could also earn a government bonus on your gift.

A Lifetime ISA is designed to help first-time buyers tax-efficiently save a deposit for a first home. Anyone aged 18 to 39 can open a LISA and save £4,000 into their LISA each tax year. This counts towards their overall ISA subscription limit (£20,000 in 2023/24). 

In addition to their own contributions and any interest or returns, your child or grandchild will receive a 25% bonus from the government on top of their contributions, up to the £4,000 limit. This means that by depositing £4,000 into their LISA, the child will receive an extra £1,000 in government bonuses. 

Better yet, the government pays these bonuses directly back into the LISA, meaning your child can immediately reinvest them and benefit from further compounding growth. 

Note that a 25% withdrawal penalty applies if your child or grandchild withdraws the funds from their ISA before age 60 for any purpose other than buying their first home.

3. Bolster their retirement fund early by saving it in a pension

You could also help your child or grandchild prepare for their future by saving their Christmas gift into a pension – whatever their age.

Aside from bolstering their future retirement fund, a pension could allow them to save tax-efficiently. 

Indeed, they will benefit from tax relief on any contribution you make to their pension up to the Annual Allowance. In the 2023/24 tax year, this stands at:

  • £60,000 for most people, unless they are higher earners 
  • 100% of earnings
  • £3,600 gross for people with no earnings, including children below the age of 18. 

So, if you make an £80 contribution to a child or grandchild’s pension, tax relief means £100 will be invested. For a child with no earnings, you could contribute up to £2,880 net and the tax relief would gross this contribution to £3,600.

What’s more, compounding growth could result in significant benefits over time, as the earlier they start saving in a pension, the more time their fund will have to grow. If the child is young, this could be for decades.

However, it’s worth mentioning that even though control of the pension passes to the child when they reach 18, they still won’t be able to access the money until they reach the minimum pension age. This stands at 55 in 2023/24 but will rise to 57 in 2028. 

So, even though saving in a pension could help the child be more prepared for retirement, they won’t be able to use the money for other milestone purchases, such as their first home, or putting it towards their university education. 

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. 

4. Use a traditional savings account to teach them invaluable money lessons

If you’d prefer to keep things simple and give the child more control over their finances, you could always set them up with a traditional savings account and make an initial deposit as a gift. 

Instead of a traditional piggy bank, you could initially open the savings account with their Christmas gift, then continue depositing smaller amounts throughout the year to help the child support their outgoings. 

This could essentially allow them to manage their own money, helping them develop healthy savings habits that could benefit them later in life. 

While this can be a fantastic way of getting a child into the savings habit, the real value of cash savings is likely to fall over time due to the effects of inflation.

5. Offer a unique way to save and earn through Premium Bonds

If you’re looking for a fun and exciting way to gift money to a child, Premium Bonds could be a great option.

Indeed, you can gift National Savings & Investments (NS&I) Premium Bonds to a child below the age of 16. A parent or guardian needs to look after the bonds before they reach 16, but after this, the child takes responsibility.

Each bond you gift to a child will enter them into a random monthly draw, much like a lottery, and the prizes typically range from £25 to £1 million. Better yet, anything they win is completely free from tax.

Moreover, any money held as Premium Bonds is completely safe since they are Treasury-backed.

It’s worth keeping in mind that the bonds won’t earn interest as all returns are based on the cash prizes, which means there could be no return on investment. As for your chance of winning, MoneySavingExpert reveals that the odds of winning the lowest prize of £25 are 1 in 21,000.

The Financial Conduct Authority does not regulate NS&I products.

Get in touch

If you’d like to discuss some of the ways you can set your younger loved ones up for the future and ensure they’re prepared financially, get in touch with us.

Please email us at or call 0115 933 8433 to find out more.