Parents welcome kids' cash

The government will announce details later this month of its new Child Trust Fund.

But research out on Wednesday suggests it would encourage most parents to top up the lump sum to give their kids a step up on the savings ladder.

Under the new scheme, every child born after September 2002 will get £250 at birth, with children from poorer families receiving up to £500.

Parents will be able to top up this sum - possibly by up to £1,000 a year.

This money will not be available to spend by the child until they reach adulthood.

Riskier investment

What's not yet clear is whether the money can be invested in the stock market or will have to go into a standard deposit account.

The government wants to encourage saving

Experts reckon the markets will provide better long-term growth, but investments are riskier than a High Street savings account.

But whatever the technicalities, the fund looks like achieving the governement's goal of encouraging saving, if research by Virgin Money is to be believed.

At the moment, only 53% of parents put money aside for their children.

But 92% of those interviewed by Virgin said they would top up the trust fund money.

Save or spend?

The average sum saved would be £38 a month. Virgin Money calculates that, with healthy growth rates, this would mean children could have £14,000 saved by the time they are 18.

However, once they reach that age, it's up to them what they do with it!

While it would clearly help towards a university education, a recent survey suggested many teenagers would blow it on a holiday.

The government has introduced a number of measures to encourage saving, not always successfully.

In fact, at the moment the amount people save as a percentage of their household income is as low as it has been in the past 25 years.

Of course, the lump sum is very handy for those with children born after September 2002.

Register account

But there's absolutely nothing to stop parents saving for their children anyway - no matter how old they are.

"If you've got money from a variety of friends and relatives you can register to have the child's account exempt from tax," says Christine Ross of SG Hambros.

You can register to have the child's account exempt from tax. Christine Ross, SG Hambros

"You fill in a form called an R85, which they'll give you at the bank or building society, and any interest earned can be set against the child's own personal income tax allowance, which is the same as adults have.

"There is a catch, though. If it's parents' money, only £100 of interest per parent can actually be earned each year tax-free.

"If it's more than that it all gets taxed back on the parents. It's basically to stop parents offloading their savings into their children's names."

Where do you put the money? There are some fairly good rates on offer at the moment, but check if any conditions apply.

Halifax - 4.75% (minimum £5 a month, maximum £500. One withdrawal a year)

Abbey National - 4.5% (four-year savings bond; £500 deposit)

Scarborough Building Society - 4.5% (three-year bond; minimum £5 a month)

Saffron Walden Building Society - 4.4% (£1 deposit; local people only)

Alliance & Leicester - 4.3% (instant access; £1 deposit)