Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Christmas, it’s is the most wonderful time of the year – or so the song goes. This year Christmas is going to look and feel very different to normal. With just 10 days to go between now and 25th December, the pressure to spend like it’s, well, Christmas, may still be there, however it seems apt to be more cautious this time around. And in all sorts of ways - from limiting contact with loved ones to spending on more thoughtful gifts. Christmas 2020 just does not feel like the time for the usual festive exuberance.

Yet, as anyone with kids - or indeed anyone who has had to shop for a child - knows, the pressure to ‘get it right’ and choose the right gift is fraught with hazards. Which YouTube stars/rappers/memes/streaming services are trending right now and which are just “argh, so 2020!” already, is impossible to keep up with; making it so easy to get it so very badly wrong.

One funny report I read this week citing the worst ‘bad present’ kids had ever received included a bathmat, herbs and spices and a coat hanger. While half of the children polled complained that they had indeed received a ‘bad’ present, one in 20 bemoaned the fact that they had never received a good one either. So if you think the under-18s who get the gifts you give would never dream of being that critical, think again.

And with Saga Money estimating that over 50s will have on average three grandchildren and one in 20 grandparents will spend more than £100 on each grandchild, that’s a lot of very expensive mis-judged gifting at stake.

If, after the year we’ve had, keeping up with the latest kiddy crazes is one headache you could do without, then Christmas 2020 could be the time to opt for something more traditional and relatively failsafe.

Most children will already have a Junior ISA, in their name, so one way to give them a gift that keeps on giving (in growth terms at least, while it’s invested) is to consider contributing to that. The £50 or so you usually spend can be put to far better use invested for their future. It’s simple to pay into the Fidelity Junior ISA .

As a parent, grandparent, aunt, uncle, godparent or even a generous friend, you can contribute to their Junior ISA without it impacting on your own ISA allowance. A total of £9,000 can be added to each child’s ISA every year, where the investments can grow, free of tax, until the child is 18.

Now, when it comes to choosing how to invest, there is a big difference between investing for a child of six months and a young adult aged 16 years - and I’m not just talking about the begrudging grunt that you’ll have to accept as acknowledgement of your gift from the 13-year-old. Their age also influences what you should invest in.

A baby or very young child has a much longer time horizon in which to allow the money to grow. So you can afford to invest the money in higher-risk funds.

Just bear in mind that a 12 or 13-year-old has far less time for that money to be ‘locked away’ out of temptation’s reach and given a chance to grow, so a lower-risk fund is a better option. For a 16-year-old with possibly only two years to go before they access the ISA, it may be better to put the money into cash.

At the age of 18, the Junior ISA can be accessed by the child, although they don’t have to take the money and run. What actually happens is that the Junior ISA is automatically converted into a regular, adult ISA that will carry on growing as before – that is unless the now adult child decides they would rather spend it instead. And it is their prerogative.

At the age of 16 a child can open a regular cash ISA in addition to holding a Junior ISA. Both ISAs will grow tax-free and enable you/the child to invest more on their behalf. This ability to hold two separate ISAs at the same time means that 16 and 17-year-olds have a greater personal ISA allowance than any other investor – with a current allowance available to them of £9,000 in a Junior ISA and an additional £20,000 in an adult cash ISA.

One word on tax, which only applies to parents, not grandparents or anyone else - but if, as a parent, you give your child money to save while they’re under the age of 18, and they earn more than £100 in gross interest on it, you could find yourself liable for tax.

This only applies to money invested outside a Junior ISA, anything within an ISA is exempt. This also applies for each parent. If the interest is more than £100 for each parent’s gift, then it will be treated as that parent’s interest for tax purposes and they will need to pay tax at their marginal rate. Gifts from other family members or friends will not be taxed.

Start a pension for them

If you are worried about giving a teenager access to a large sum of money in one go, when they turn 18, another option is to save into a pension on behalf of the child. Here, the money is kept safely out of reach until they are at least 57 from 2028, under the current pension rules.

Each child can have a total of £3,600 a year, or £300 a month, saved into a pension. Just as with your pension, the Government automatically tops up payments you make by 20%, so for your child to have the maximum £3,600 a year, total contributions only need to come to £2,880.

By saving into a Junior SIPP you can make sure this year’s Christmas gift goes towards helping them have a financially secure future many, many Christmases away.

More on Junior ISAs

More on Junior SIPPs

Important Information: The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. Junior ISAs are long term tax-efficient savings accounts for children. A Junior ISA is only available to children under the age of 18 who are resident in the UK. It is not possible to hold both a Junior ISA and a Child Trust Fund (CTF). If your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your child’s behalf. If your child holds a CTF they can transfer the investment into a Junior ISA. Please note that Fidelity does not allow for CTF transfers into a Junior ISA. Parents or guardians can open the Junior ISA and manage the account but the money belongs to the child and the investment is locked away until the child reaches 18 years old. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.

Topics covered:

Investing for children; Junior ISAJunior SIPP

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