Looking at presents in the longer term: Nic Cicutti examines how parents can set aside a nest-egg

While bicycles, computer games and other toys are bound to figure high on parents' Christmas shopping lists, more and more people are considering long-term gifts for their offspring.

Setting aside a few pounds each month is one of the more pain-free methods of providing a nest-egg for children. Over a 10-year period or longer the amount finally paid out should be enough for a deposit on a first car or a trip abroad.

Amanda Davidson, a financial adviser at Holden Meehan, says: 'Of course the last thing parents want to do is deny their children all the traditional trappings of Christmas. But it makes sense to look forward a few years - no matter how small the savings at first.'

Friendly society savings schemes offer the chance to save as little as pounds 9 a month, or even less in some cases, without having to pay tax once the scheme matures.

Some friendly societies target parents, offering special tax-exempt bonds aimed specifically at children.

In investment terms there is nothing beyond their name to distinguish these bonds from those marketed at more mature savers, although in some cases children may receive small presents or cards.

Tunbridge Wells Equitable has a Baby Bond for under-10s and a Youngster Bond for those aged 10 to 18. Homeowners has its Children's Tax-free Savings Plan.

Family Assurance markets an Extended Term Junior Bond, while Sheperds Friendly Society has its own Young Saver Plan.

The problem with friendly society bonds is the high charges levied in the first years.

Because the premiums are low the cost of setting them up and annual management charges are relatively high.

Family Assurance's annual management fees are 1.95 per cent in the first 10 years, falling to 1 per cent thereafter. The first year a Junior Bond is set up only 35 per cent of premiums are paid into the fund.

In comparison, a typical unit trust will lose only 5 per cent and have an annual management charge of 1.5 per cent.

The standard investment examples for Baby Bonds show growth of 6 and 12 per cent. With monthly payments of pounds 18 over a 10-year term, Family Assurance Junior Bond would cut the net yield by more than half - 3.2 per cent. This assumes that more than one application per family will be made. If not, the drop is even greater.

Other friendly societies operate similar charges. A Homeowners bond reduces by 3.5 per cent while Tunbridge Wells drops by between 4.1 and 5.5 per cent.

Friendly societies commit savers to long-term savings. Unit trusts are more flexible. Invesco Fund Managers' Rupert Bear unit trust, with an annual charge of 1.5 per cent, is lifting its minimum monthly investment from pounds 10 to pounds 20.

There are 13 unit trust companies offering a minimum monthly investment limit of pounds 20 or less, with a further 189 whose limit begins at pounds 25.

One point to remember for non-tax exempt products is that children receive the same tax allowances as their parents - pounds 3,445 for the current year.

Alternatively, for those prepared to make lump sum investments of up to pounds 1,000, National Savings Children's Bonus Bonds can be held by children under 16. They pay tax-free annual interest of 5 per cent, rising to 7.85 per cent if held over the full five years.

(Graphic omitted)