I used flannel nappies with Shelby until she was about 9 months old. Honestly you are changing them so frequently when they are little that they don't have time to leak, especially if you are b/feeding. Terry is definately too bulky on newborns and really stay that way until they are more mobile.
I priced up the cost of making my own, Spot light sell the material, and I would say you would definately be best to overlock the hems, with the amount of washing they would start to get very tatty. Saying that, I found target, and BIG W sold flannel nappies, (however you have to be quick) and they are slightly cheaper than making them surprisingly.


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) I ended up cutting terry flats in half and sewing a hem down the cut side. They were less bulky and I find terry more absorbent than flannels, even at half-thickness. I put a fluffy cover over the top.

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