GIVEN the state of the markets, many investors may feel they would have been better allowing a five-year-old to manage their money, but there are in fact several saving plans specifically designed for children.

Many are simple and flexible and an ideal way of investing extra income from Child Benefit or Children's Tax Credit with the child's future financial security in mind.

The simplest and, arguably, safest method is to open a National Savings or bank/building society deposit account on the child's behalf.

You could even buy Premium Bonds in the hope of a big prize! This type of investment is very straightforward and flexible but, being deposit-based, the returns are modest.

An alternative would be to take advantage of each child's allowance for a tax-exempt Friendly Society savings plan of up to £25 per month.

As this must be maintained for at least ten years, a maturity date could be chosen on or around the child's 18th birthday or in preparation for university.

A wide variety of funds are available and, while generally more cautious than unit trusts, they would be expected to out-perform deposits over the longer term. These plans involve a greater risk than deposit accounts where capital tends to be secure and easily accessible.

Older children (16 and over) can take out their own cash ISAs but unit trusts for younger children must be bought on their behalf.

Parents would be liable for the tax on any income in excess of £100 within each tax year. However, do remember that children enjoy their own annual income and capital gains tax allowances which can be used to offset any income or gains on gifts from grandparents etc.

It may come as a surprise to learn that children can now have their own Stakeholder Pension although for many, that may seem a little too far in the future!

Nevertheless, I would recommend that anyone who has the best interests of their children in mind give serious consideration to structured, tax-efficient investments on their behalf.

David Holbrook is the managing director, of Hallmark-ifa, one of Yorkshire's leading firms of Independent Financial Advisers, based at Club Chambers, Museum Street, York, YO1 7DT.

He can be contacted on 01904 630333 or email david.holbrook@hallmark-ifa.com for further consultation.

Updated: 13:23 Tuesday, April 27, 2004