If £265 were invested every year in the average stocks and shares Junior Isa instead, after 18 years it would be worth £8,093, assuming a 5pc annual return.
Adjusted for inflation this would be £3,154 – or more if, as seems likely, inflation falls from its current elevated level.
Parents who buy Premium Bonds for their children are also likely to lose money in real terms after the chances of winning were cut last year.
If £265 worth of Premium Bonds were bought each year, by the time the child reached 18 they would have an average chance of winning just £25 a year. There is a slim chance to win a larger prize. In the past 10 years, seven children have won the £1m jackpot.
Specialist children’s savings accounts usually offer better rates than normal savings deals, but returns are still far below inflation.
The highest rate, 2.35pc from Principality Building Society’s Learner Earner account, is less than half the 5.1pc rise in the consumer prices index last month.
Children may benefit more in the long run if money is invested in a junior self-invested personal pension. Up to £3,600 can be invested in junior Sipps per child each year. Tax relief of 20pc up to £720 is automatically added, so the maximum you invest yourself is £2,880.
Junior Sipps work similarly to regular Sipps, but parents control all investment decisions until the child reaches adulthood.