If you are looking to invest in your or another child’s future through children’s Premium Bonds, Moneyfarm can help. Learn about this trustworthy, fun, tax-free savings option and start planning for your child’s financial future today.
| Is premium bonds for children a good investment? | Yes, premium bonds are a good way of saving for your children |
| When can my child receive their premium bond? | On their 16th birthday |
| What is the minimum deposit requirement for children’s premium bonds? | The minimum amount for premium bonds is £25.00 |
| Taxes of prize money? | UK prizes are tax free. Free of Income Tax and Capital Gains tax |
What are premium bonds?
Premium Bonds issued by the UK government’s National Savings and Investments Agency (NS&I) are a non-traditional savings product that dates back to 1956. They are available in the UK and from several other European countries and are trusted by 25 million people. They are investments placed in savings accounts that allow penalty-free withdrawals.
It used to be possible to buy national children’s savings bonds. These were lump sum investments made over a 5-year period that offered 2% AER (Annual Equivalent Rate) interest, tax-free. However, they were discontinued in September 2017, but there are still 800,000 out there, although some parents have since moved the money into child Premium Bonds.
As with their adult equivalent, no interest is earned on Premium Bonds for children in the UK, but they are placed in a monthly draw, and any prize money won is tax-free. Each £1 put into a bond stands a chance to win a monthly cash prize worth various values from 25 to 1 million pounds. The more you buy, the higher your chances of winning. The odds of winning are 35,000 to 1.
They are a safe option. While the FCA’s compensation scheme only guarantees your savings up to £85,000, your savings with NS&I are in safe hands with a 100% guarantee. Adding Premium Bonds to an investment portfolio can make it more diverse and balanced.
Buying premium bonds for a child
Premium Bonds for children are bought by parents for children under 16. When buying them, the parents or guardians are signatories to the child’s account and are responsible for it until the child turns 16. Investing for children is very important but can be tricky, so buying Premium Bonds for children is an easy way to get started.
Buying premium bonds for grandchildren
Grandparents can buy Premium Bonds for their grandchildren. They can invest from £25 to £50,000 on behalf of any grandchild under the age of 16, and many consider this a beneficial choice for the child.
Differences between children’s premium bonds and other savings products
There are several key differences between Children’s Premium Bonds and other savings products when considering how to invest:
- Interest vs. Prize Draw: Unlike conventional savings products, children’s Premium Bonds do not earn interest. Instead, they provide a chance to win tax-free prizes in a monthly drawing, and the reward values range from sums like £25 to the jackpot of £1 million. In contrast to interest-bearing savings accounts, buying child Premium Bonds brings an element of anticipation into the mix.
- No Guaranteed Returns: You normally obtain a fixed or variable interest rate with other savings products like savings accounts or certificates of deposit (CDs), which guarantees a return on your investment. However, Premium Bonds for children do not guarantee a return. While the chances of winning rewards exist, there is no guarantee of doing so.
- Accessibility and Flexibility: Children’s Premium Bonds can be redeemed without incurring penalties at any moment. This easy liquidity can be important if there is a need to access the money for a particular reason or if things change. Other savings plans may have limitations or fees for early withdrawals.
- UK government backing: The UK government backs child Premium Bonds, so they are viewed as low-risk investments. In contrast, a child savings account may entail varied amounts of risk due to underlying investment performance.
- Financial education and Literacy: Buying children’s Premium Bonds can present a special chance to introduce kids to the idea of saving money and making investments. It can help young ones to learn about the advantages of saving money. Other savings products might not have the same level of intrigue or excitement.
Suppose you are buying Premium Bonds for a child or grandchildren. In that case, it’s important to consider individual preferences, such as the child’s financial goals and risk tolerance. You also need to consider the parents’ or guardians’ attitudes in order to make an informed decision.
How to buy premium bonds
There are three ways to buy Premium Bonds for children in the UK: online, by post, or over the phone. The fastest way is to buy online via the National Savings and Investment (NS&I) website. Phone purchases will require your debit card details. If you buy them through the post, mail in a complete application form and make payment via cheque.
The minimum amount you can invest is £25, while the maximum a child can have is £50,000. However, it is worth noting that you will need to have your money in the bond for one calendar month before it’s eligible for the draw.
How do I buy premium bonds for children under 16?
Children under the age of 16 are not allowed to buy Premium Bonds, so their parents must buy them on their behalf and be the custodians.
Buying as a parent
As mentioned earlier, you can buy Premium Bonds for your children over the phone, online or by post. The application form has a section that must be completed using the parent’s or legal guardian’s information. First-time registration could take 2-3 days before the account is active. The parent will oversee the Premium Bonds for the children until the child reaches the age of 16. Once the child turns 16, ownership of the bond is transferred to the child.
Buying for someone else’s child
If you want to buy Premium Bonds for someone else’s child, you need to apply via post or online. When filling out the form, you need to input the nominated parents’ or guardians’ details. You will get a message confirming your investment, and you can also request a paper gift card to present to the child or their guardian. While non-parents/guardians can buy them, only the child’s parent/guardian can manage the account.
Can grandparents buy Premium Bonds for grandchildren, and should they?
Yes, grandparents can gift Premium Bonds to their grandchildren. Buying Premium Bonds for grandchildren is simple and follows the explanation given earlier. Until the child is 16, their nominated guardian will oversee the account. But rather than putting money into an account that doesn’t earn interest—only an outside chance of winning a cash prize—some grandparents opt for the more positive approach that Junior ISAs offer.
Buying Premium Bonds for children living abroad
A child’s parent or legal guardian can not only buy Premium Bonds for children in the UK; they can also buy them for a child living abroad. It’s important to note that the child must own a UK bank or building society account for the prize money to be paid into should they win a money prize in the draw. The parents need to submit a postal application first. Afterwards, bond purchases can be done via phone or online.
Please check the local laws to see if holding Premium Bonds is permitted if the child resides outside of the UK. For instance, it might not be possible to own Premium Bonds while in the United States because of the country’s stringent gaming and lottery regulations.
What happens to premium bonds when the child reaches 16
Once the child turns 16, they will take over the account and assume responsibility. Accounts can be accessed and managed online. However, before the 16-year-olds can own their account, they need to complete a registration form. The NS&I needs an address and a witness to the child’s signature as evidence of identity.
How to top up your child’s Premium Bond account
Once an account has been registered and contains bonds, you can purchase more online or by telephone. You can also buy bonds online using a bank transfer, or you can set up a standing order with your bank if you want to top up regularly. The minimum deposit for each purchase is £25.
How to transfer investments to Premium Bonds
You can transfer investments from any of your NS&I accounts to a Premium Bond account. If the premium bond transfer is for your child, the account must be in the child’s name, and you must be the parent or legal guardian responsible for the account. You can complete an online form or send NS&I the necessary information via post.
Premium Bonds vs Junior ISAs: Why choose Premium Bonds for your children
When considering how to invest and explore the best options for a child, it’s important to note the differences between child Premium Bonds and other savings products such as Junior Individual Savings Accounts (Junior ISAs). Child bonds and JISAs are two popular options in the UK, each with its unique advantages, spurring the ongoing ISAs vs bonds debate.
Premium Bonds for children are one of the safest options you can take if you are looking to set your kids up before they turn 16. They might not earn any interest, but you get the chance to win £1 million while the principal amount is stored safely. The potential for significant returns is appealing, but it’s important to remember that not every bond wins, and there’s a chance of earning no returns at all.
Over 800,000 children under the age of 16 have a Premium Bond account. When considering how to invest and explore the best options, it’s important to note that a junior ISA is another popular choice for children’s savings.
Junior ISAs are tax-advantaged savings accounts for children. There are two options – cash JISAs and stocks and shares JISAs. Both offer a tax-efficient way to save or invest for a child’s future. JISAs may give potential returns through interest or investment growth but have contribution restrictions. Also, the funds cannot be accessed by the child until they turn 18.
In deciding between Premium Bonds and Junior ISAs (best ISAs for a baby), consider your financial goals, risk tolerance, and the child’s future needs. If you’re drawn to the chance of winning substantial tax-free prizes, Premium Bonds may be suitable, but the odds are considerable. However, if you prefer assured returns or wish to introduce your child to investing, a Junior ISA could be a better choice.
Always consult with a financial advisor to determine whether Premium Bonds are a good fit for your child’s investment strategy.
What are the benefits of children’s Premium Bonds?
There are several benefits to child Premium Bonds.
- The chance to win a tax-free monthly prize draw.
- Premium Bonds for children are backed by the UK government, providing a secure savings option.
- They offer flexibility and easy access to funds without penalty.
- There is no risk of losing the initial investment, and the principal amount remains intact.
- They also have educational value, teaching children about financial responsibility and money management.
Buying Premium Bonds for a child can be part of the overall financial strategy to save and potentially grow savings. When budgeting and saving, it’s important to consider the cost of raising a child in the UK, as well as exploring other savings and investment options that align with one’s financial goals and circumstances.
Managing Premium Bonds for Children: Unclaimed Prizes for Under 16s
Parents or guardians have a key duty to manage children’s Premium Bonds. They manage the bonds up until the child reaches 16; this includes making new purchases, keeping track of earnings, and making sure contact information is current. Unclaimed awards are a real problem, frequently as a result of inaccurate information. The child’s account needs to be checked frequently. Any prizes won need to be claimed retrospectively. Effective management guarantees that every win increases the child’s savings while also maximising the prospective returns on the child’s account.
FAQ
How many Premium Bonds can a child have?
Parents, grandparents and family members can buy Premium Bonds for a child, and a child’s account can have multiple guardians linked to it. However, the total amount a child can have in premium bonds is £50,000.
What happens if your child wins Premium Bonds?
Once a child wins the jackpot, the money goes to the parent or guardian in charge of the child’s account. The parent or ‘responsible person’ looking after the child’s bond will determine what to do with the prize money.
Are Premium Bonds safe and secure?
Yes, Premium Bonds are safe and secure. They are authorised and regulated by the Treasury and backed by the government. It means your money is 100% protected, and the amount you put into a premium bond is the amount you are paid back.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
