I decided to make a soft version out of felt for my youngest niece, who's turning one this month. This was a really fun project! I chose felt in teal, purple, and pink, and sewed a magnet inside each letter.
I started by printing out each letter of the alphabet, using Arial Black font, size 220. Then I cut out each letter and traced it on to my felt, using a fabric marking pen or chalk. I then cut out a square of felt around the letter and sewed around my outline, slipping the magnet inside before sewing the letter closed. If you're using a metal bobbin, you want to be very careful that the magnet does not pull your bobbin out of place while sewing and tangle your thread. Try to keep the magnet as far away from the bobbin as possible while sewing. I found it helpful to pin it in to a corner so it wouldn't move around.