What’s the best present to give when someone close to you has a baby? For a friend you might gift some marvellous muslins (Aden + Anais, please) or splash out on a stylish change bag (Tiba + Marl, of course).

But what about when it’s close family? When the happy news came through of a bonnie new addition to our family last month, we started shopping — a baby carrier, soft toys and a Peter Rabbit book. Must-haves for every child, surely.

But I can’t help wondering when it might be appropriate to suggest to the new parents that they should think about opening a Junior Isa. Not yet, of course — the little lady is just weeks old.

A saving or investment vehicle is not just for parents to put money aside when they can, but for gifts too. Because while showering a newborn with presents helps the new parents with the huge cost of furnishing their baby with everything they need, contributing to a savings or investment pot has to be a winner for all the family. A pot of money could help to fund driving lessons, gap years and house deposits.

Junior Isas are a great way to save for children. You can shelter up to £9,000 each tax year and if you start when they are tiny the compound growth each year can result in a significant sum.

Parents can choose a cash version of the Junior Isa or stocks and shares. Most choose cash; the latest HMRC data shows that there is £2 billion held in cash Junior Isas and £1.4 billion in stocks and shares.

But the potential rewards from investments are far higher, and when you’re playing the long (investment) game you can afford to take risks. Put £100 a month into a cash Isa paying 3 per cent over 18 years and the child would end up with a pot of nearly £28,600, according to the investment platform Hargreaves Lansdown.

Pay that £100 a month into a stocks and shares Isa growing an average of 5 per cent a year and they would be nearly £6,500 better off. This is not guaranteed, of course, but neither is the cash Isa rate.

What to invest in

If you do plump for a stocks and shares Junior Isa, which investments are best? The most popular investments for Junior Isas include the Scottish Mortgage investment trust, which invests in global companies it thinks have the best prospects of high growth. Its top ten holdings include the AI giant Nvidia and the Italian carmaker Ferrari. The Fundsmith Equity fund, which holds shares in high-quality businesses such as Microsoft and Visa, is another long-standing favourite.

Tracker funds and exchange-traded funds (ETFs), which replicate the holdings of certain indices or sectors and include Fidelity World Index and Vanguard S&P 500 ETF, are also popular. Parents also buy high dividend-paying stocks such as Shell, Legal & General and Lloyds Banking Group.

If you are just starting out you might kick off with some broad funds or trusts. While most investment attention in the UK is given to the FTSE 100, smaller companies are a compelling long-term bet. They have underperformed bigger firms of late, but it’s an exciting space in which to invest for the future. Traditionally, smaller companies perform well in the lead-up to and immediate aftermath of interest rate cuts.

The JP Morgan UK Small Cap Growth & Income investment trust has top ten holdings including 4imprint, a London-based marketer of promotional merchandise such as mugs, sweatshirts and keyrings. It also holds Warpaint, the Aim-listed cosmetics group behind the W7 and Technic brands. The fund has returned 52 per cent over the past five years.

As the portfolio grows you could look start look at sector specific funds. To gain exposure to the technology market, for example, you could consider L&G Global Technology Index Trust, a fund popular with Junior Isa investors. This passive fund (as opposed to one actively managed by a human stockpicker) simply holds shares in the 275 largest technology companies in the world, aiming to replicate the returns of the FTSE World Index. It has returned an impressive 203 per cent in five years.

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For an active choice there’s Polar Capital Technology Trust, which holds Apple, Microsoft, Alphabet and Meta in its top ten holdings. The fund has returned 146 per cent over five years.

Many parents prefer a more hands-off approach. Perhaps that’s why the Vanguard Lifestrategy funds are popular. These are multi-asset funds — in other words, a ready-made portfolio of index funds and bonds — giving access to thousands of shares in a single investment.

Once a Junior Isa has been set up by a parent or legal guardian, anyone can contribute. It’s usually just a matter of getting the sort code and account number to pay in.

• Compare Junior Isa accounts• Compare child savings accounts

Or how about a pension?

You might even consider a pension for a child. It may seem absurd to think about retirement for someone who hasn’t even been potty trained, but the maths is pretty compelling thanks to tax relief. You can pay up to £2,880 a tax year into a child’s pension and it will be topped up to £3,600 by the government.

If you contributed the maximum each year from birth to age 18, the pot would be worth about £80,000, assuming 5 per cent investment growth a year after fees, according to Hargreaves Lansdown. Not everyone can afford this much but it’s a good incentive perhaps for grandparents doing some estate planning.

The child won’t be able to access the money until they are 57 (it is 55 at the moment but will rise to 57 in 2028), but can take control of the account from age 18. Junior Isa holders will also take control of their account from age 18. That means parents have the job of educating their children, when they’ve finished the Peter Rabbit books, about the world of saving and investing.

With social media taking over the world, it’s important to give children enough financial nous to prevent them from blowing their Isa on the latest TikTok meme stock or crypto craze — or whatever will be around at the time.

I have started educating our young son on money matters in the hope that it will give him a good grounding. An older year group at his school recently participated in a financial literacy session on investments and trading. When it’s his turn, I might request to go along.

Whatever you decide for your own child or other young relatives, remember that the earlier you start the better. That’s what I’ll be reminding the new mummy and daddy in our family.