Money Help Desk: Avoid tax on nest egg with an ISA or children's account

MY AUNT has just died, leaving me £5,000. I want to put the money away to help pay for when my children go to college. My eldest son is 12. Where would I be best to put the money. I'm quite happy to tie it up until he is 18.

Michelle Slade, savings expert at Moneyfacts, writes:

If you are happy to tie the money up until your son is 18 then the best rates at the moment are on the five-year fixed rate bonds, which will mature when he is 17.

Money is best saved in an Isa if possible to avoid tax.

That said you could open an account in your son's name. As he will have his own personal allowance, he will not incur tax anyway. The yearly tax-free cash Isa allowance is currently 5,100.

The best rates for a five- year fixed ISA are Halifax and Birmingham Midshires, both paying 4.25 per cent. The Derbyshire and Dunfermline building societies are both paying 4.15 per cent with Julian Hodge Bank and Principality Building Society both paying 4 per cent.

If you go down the non-Isa route, then the best returns on non-ISA five-year fixed rates are 4.55 per cent with the AA, or 4.5 per cent with United Trust Bank or Wesleyan Bank.

For a well-known high street provider, Nationwide Building Society is paying 4.10 per cent.

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