Investing for children can be one of the most rewarding financial decisions you will ever make. Time is on your side, and even small monthly contributions into a regular share-based savings scheme can turn, 10, 15 or 18 years later, into a nest egg for your child's trip to university or college, or a deposit for their first home.

One way of building up money for them in a tax-efficient way is to hold the investments within a tax-free individual savings account (ISA) in the parent's name. Many fund management houses offer their own ISA plans, with a maximum investment of £7,000 in the tax year. Friendly societies also offer tax-free savings products. Under these you can put £25 per month into a bond, but the downside is that your money is locked away for ten years if you wish to maximise the benefits.

For the short term, or for the nervous investor, a cash savings account is the most popular option. Many banks and building societies offer children's savings accounts but check the interest rate being paid before falling for any gimmicks or special offers.

Children have an annual tax allowance just like their parents. They pay tax on income above this level. They also have their own capital gains tax allowance. You can register your child as a non-taxpayer by filling in an Inland Revenue form R85, which is available at tax offices and post offices. This should be filled in by the parent and means that children should receive gross interest on cash deposits as well as on share dividends.

However, children's investment income of more than £100 a year which is derived from money given by their parents is taxable as the parent's own income - which means that giving money to your children isn't necessarily an effective way of saving income tax.

Children's bonus bonds can be bought for anyone under 16 and the minimum investment is usually £25.

Both parents and grandparents can make an IHT tax-free gift of £3,000 in any one year to a child under Inland Revenue rules.