Start early and watch your kids' cash grow

Setting up a savings plan for children as soon as possible can be a very shrewd investment.

Not only will it go a long way towards teaching kids the benefits of saving but it can also help provide a nice little lump sum to help them out with some of the hefty expenses early adulthood brings.

While cash is a great way of saving for an Xbox 360 or holiday spending money, if you've got bigger targets in mind such as university fees or help buying a first home, then you are more likely to achieve those goals with equity-based investments.

While there will invariably be some risk, over a period of 10 years or more an investment in stocks and shares should give you higher returns and you have time to ride out a few stockmarket wobbles along the way.

You can use investment trusts for children in a couple of ways: via the junior ISA wrapper or using a children's investment plan.

Junior ISAs

Many investment trust companies now run junior ISAs, which provide access to a range of investment trusts and in some cases unit trusts, too - offering a cost-effective way of investing and tax-free growth.

Moreover, you can pay in occasional lump sums or make regular monthly investments. You can save up to £3,600 a year for your children tax-free using a junior ISA, although the money cannot be cashed in until the child reaches 18.

George Osborne announced in his 2014 Budget that this limit will be increased to £4,000 on 1 July.

To find out more about how ISAs will be changed after the Budget, read: Budget 2014: £15,000 ISA boost for Britain's savers.

Investment plans

For children who aren't eligible for junior ISAs - or those whose parents want more control over the cash - there are children's investment plans that offer access to a variety of trusts at relatively low cost.

They have several key strengths that make them ideal for building up a substantial sum over the very long term - maybe 18 years or more if you're particularly organised and plan in advance.

You can set up a direct debit to make monthly investments, as well as invest occasional lump sums, so even if you have little to spare, regular savings schemes can be manageable for you. Many allow you to put in £50 or less every month, with some investment trust schemes accepting as little as £25 a month.

Yet £25 a month over 18 years amounts to £5,400 of capital, and that is without the capital growth generated by your money over the years.

Investment trust children's savings plans have other advantages for cash-strapped parents. Dealing charges are very low as all the investments for one month are usually placed as a single deal with a stockbroker, and most plans give access to a good range of their own in-house trusts.

For example, if you use Aberdeen's Investment Plan for Children, you can invest into trusts ranging from Aberdeen Asian Smaller Companies and Aberdeen New Dawn to Murray Income Trust. You can choose as many different trusts as you want within the plan, too.

Indeed, in this category of the Moneywise Children's Savings Awards, Aberdeen took the top spot, with Baillie Gifford the runner-up.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.