Money: Bring your child to account

Children have been left behind in the rush to offer investment opportunities. Children under the age of 18 are not allowed to buy Tax- Exempt Savings Schemes or Personal Equity Plans, which rules them out of the best tax-free opportunities. Parents must also bear in mind that they cannot simply channel their own cash to their children and use them as a tax shelter. Interest in excess of pounds 100 a year on children's savings given by the parents is taxed as the parents' income.

But provided they comply with this rule, children do have a personal allowance just like adults, which allows them an income of pounds 3,525 in the tax year just ending and pounds 3,765 in the year from 6 April, before they are liable to tax.

So the easy option for children is to be registered as a non-taxpayer using a form available from banks and building societies, and open a special children's account, which most banks and building societies offer. Most allow children as young as seven to open an account, although parents in effect control it for them.

The next best investment at present is the Children's Bonus Bond from National Savings, which is a five- year, tax-free investment, available to under-16s. Children can also have a tax-free account opened on their behalf in a Friendly Society, but these must really be held for 10 years to be worthwhile investments.

Children over the age of 13 may be eligible for a cash-card account at a bank or building society, which allows them to taste the forbidden fruit of taking out their own money and spending it. Those whose parents are more cautious may find themselves restricted to a Notice Account with a bank or building society, which penalises them for frequent withdrawals with a loss of interest or an equivalent waiting period before they can withdraw any more cash.

Those lucky enough to earn more than the tax-free limit have a wider choice, although no-one actually encourages them to start speculating at such a tender age. Children can also put money into a unit trust or investment trust savings plan, which is "designated" as theirs, although they cannot withdraw the funds until they are 18 without parental consent. Children with a lump sum to invest and an income to support it could well consider buying a traded, ie second-hand, endowment policy, paying the remaining premiums in order to claim the lump sum including the valuable terminal bonus when the policy matures. The child could also make good use of the capital.