It used to be a luxury, but as the cost of further education spirals, saving money for your child’s future is becoming a necessity. Estimates from the Children’s Mutual friendly society suggest it will cost around £33,000 a year to go to university in 18 years’ time. Money put by now could help them meet the cost of their first home.”The sooner you start saving for your child, the better,” says Annabel Brodie-Smith, communications director at the Association of Investment Trust Companies (AITC) “For example, an extra two years can make a big difference. If you had started investing £50 a month in the average investment trust 16 years ago, you would now have £13,646. However, if you had started putting by £50 a month two years earlier, you would now have £18,315 – nearly £5,000 more.”The Chancellor’s announcement in this year’s Budget that every child born since last September will receive money from the Government is designed to encourage parents and relatives to start saving.

Although the exact details of the child trust funds have yet to be revealed, each child will receive at least £250 at birth, and those from poorer families will get £500. Friends and relatives will then be able to contribute a further £1,000 a year which is expected to be either tax free or to have some sort of tax incentive attached. The Government will top up the funds, adding something like £50 or £100 when the child is five, 11 and 16.However, while all babies born since September will benefit from them, the funds aren’t likely to be introduced until 2005. And as the AITC figures show, holding off for two years after a baby is born before you start saving can make a big difference.

So what else can you do to provide for your child’s future?Equity investments are ideal for children because over the long term – in this case, 18 years or so – it is likely that the returns will far outweigh those you would receive from a building society account. But this doesn’t mean you should go for one of the plans that are specifically marketed for children, such as Invesco Perpetual’s Rupert Bear fund, Aberdeen’s Thomas the Tank Engine scheme or the Witan Jump fund. “Be careful,” warns Michael Owen, managing director at independent financial adviser (IFA) Plan Invest. “The packaging isn’t important – you’ve got to look underneath and see what’s there.”While some IFAs do recommend Jump, the performance of the Rupert Bear fund has been very poor. Invesco has replaced the fund manager but it’s too early to say if there will be a turnaround.However, when setting money aside for children, parents have plenty of room for manoeuvre. They can choose from any unit trust, open-ended investment company (Oeic) or investment trust.”Rather than invest in a special children’s fund, why not buy them a cuddly toy and invest in a good fund?” says Anna Bowes, savings and investment manager at IFA Chase de Vere.