My vote is cheap 16.5 bike now. Better quality 20" later. I've had to swap the bikes out about every 2 years. I liked the idea that my kid could fully handle the bike by not getting them a big bike that was awkward.
As long as the kid's feet can touch the ground (or at least one foot) while seated and both feet while standing over the top tube; that should be a good idea of fit also.