Investment for young child

[JulianPH]

4Q said:

It's my nieces first birthday this week and though rather than buy her something she wont need, or even be aware of at that age, that i would like to invest some money that might have value when she's older. I was thinking about £500 initially with a similar amount each year for future birthdays, etc. After the initial deposit it could be regular monthly payments or lump sums a couple of times a year, whichever gave the best returns. I was thinking of something she could perhaps use for a house deposit when she gets to her early 20's?
Would I be better off just buying premium bonds for her or is there a better longish term option?

OP - Listen to Sid and Phil. So many people here try and give advice when they don't understand the consequences of their suggestions.

You can also set up a Bare Trust for free and make your Niece the beneficiary. Most brokers will (or would, my experience may be out of date) enable investment under this and there is highly unlikely to be a tax bill in any case.