Thinking ahead when it comes to baby’s gifts

The arrival of a new little member of the Royal Family has got people talking about babies.

But people have been warned to avoid the traditional baby gift of premium bonds by financial experts, Brewin Dolphin.

They say that the Government-backed scheme is nearly as bad as putting money under the mattress.

Douglas Cameron, a financial planner at Brewin Dolphin in Glasgow, said that the bonds: ‘are particularly popular with grandparents but the returns are barely better than putting the cash in a moneybox for the next 18 years.’

Instead, those who wish to provide for babies less financially fortunate than the new royal baby could consider investing in a pension that might make them a millionaire by the time they come to retire.

Figures from Brewin Dolphin show that if parents and grandparents were to invest £240 a month (£2,880 per annum net £3,600 gross, which is the maximum allowed) into a pension for a new born child from birth, when that child reaches the age of 55 in 2073 they could have a pension fund worth £593,726.

Based on today’s annuity rates that could provide an income of £25,300 per annum or £19,000, along with a tax-free cash sum of £148,432.

Investing a child’s Junior ISA (JISA) could also heap handsome rewards, investing the allowance in the stock market each year from birth could produce a total fund of £161,342.41 when they turn 18, Brewin Dolphin calculates.

The substantial sum, which is based on growth of the market over the last 18 years. You should remember the value of investments in a stock market JISA could fall and the child could get back less than the amount invested.

This capital will be accessible once the child reaches the age of 18 and so could be used to finance a child through university covering fees, accommodation and maintenance.

Alternatively, the Junior ISA can be converted into a full adult ISA with the full annual allowance available to continue to grow free of taxation.

Douglas added: ‘The first few weeks and months of a baby’s life are demanding but parents shouldn’t overlook their child’s financial future. The one thing every parent can be sure of is that the costs associated with children do not disappear at 18, so a long-term savings plan is gift that really will keep on giving.’