Pick of the piggy banks

One key personal finance lesson is to shop around for the best deals. And with interest rates of 6.95% gross paid twice yearly and a minimum deposit of £1, Nationwide's Smart 2 Save account offers children the best deal on an instant-access account.

Coventry Building Society's Interest Zone, with a rate of 6.7% gross, follows close behind, but children can only get access to their money once they are seven years old.

Among the lesser known building societies Saffron Walden tops the list. The society offers children a 6.85% rate of interest before tax and instant access to their funds on a £1 minimum deposit.

Lambeth Building Society's Cat's Whiskers childrens account offers a slightly better rate of 6.90%, but requires a minimum deposit of £100 - a sum most children are not likely to have at hand. However, other accounts pay higher rates based on higher minimum deposits. On a minimum of £500, Abbey National will pay 7%, but stop your child getting at the money for four years. To get 7.15% from Dumfermline Building Society they need a minimum deposit of £500 and must wait three years.

Lying somewhere between is the Ipswich Building Society's Young Savers Club account. It pays 7% with instant access, but requires a minimum deposit of £500.

In contrast to these rates, National Savings' rates appear pathetic. Its Children's Bond, for example, pays only 5.65% and has a five-year notice period. But the interest is tax-free and is useful for parents giving money.

There is nothing wrong with long notice periods, not to stash extra bits of pocket money away, but to build up a sizeable amount of money for big purchases in the future. And if the child is happy to wait for access to the money there are plenty of far more profitable options. ISAs are an obvious choice. Many of the cash ones pay over 7% tax-free, and if you open a stocks and shares one the returns can be much higher.

The benefit of an ISA is that money can be taken out of the account within the tax year. This can come in handy if the latest children's fads and fashions dictate that your child must have that exorbitantly priced pair of trainers. Just remember that you can't put the money back, so they will be losing out on interest.

Unit or investment trusts are another alternative. Some have cut minimum monthy payments - typically £50 to £100 and, therefore, prohibitive for children - to much more kid-friendly sums of £10 or £25 a month. M&G has cut its minimum to £10 a month. Invesco GT Rupert Children's Fund accepts a minimum payment of £20 a month. And Henderson's recently-launched Jump plan, aimed at young investors, has cut its minimum to £25, paid each month or every three months.