Buying premium bonds for children just got easier

Anyone can now invest in premium bonds on behalf of children under the age of 16.

Anyone can now buy premium bonds for children, including aunts, uncles and family friends.

Previously, only a parent, grandparent or guardian could buy premium bonds in a child’s name.

This change to premium bonds was first announced in the October 2018 Budget and is aimed at creating a stronger savings culture.

This latest improvement to premium bonds follows the reduction of the minimum investment from £100 to £25 in February this year. The maximum that you can spend on premium bonds is £50,000.

- Prudent Parent: avoid this common Junior Isa mistake

Buying premium bonds

Anyone can now invest in premium bonds on behalf of children under the age of 16.

Premium Bonds can be bought as gifts online at National Savings and Investments (NS&I), or by post.

The purchaser will need to nominate one of the child’s parents or guardians to look after the bonds until the child turns 16.

The nominated parent or guardian will then be sent the bond record, any prizes won, and any payment for cashed-in bonds.

If the customer has chosen to have prizes reinvested for a child, then prizes will be paid to the child’s premium bonds account.

Should you invest in premium bonds?

Unlike other savings accounts, premium bonds do not pay interest. This means that your money isn’t making anything each month and will gradually lose its value as inflation creeps up.

Instead, holders of premium bonds are entered into a monthly prize draw, giving them the opportunity to win between £25 to £1 million, tax free.

The more you buy, the greater your chances are of winning. The NS&I says that the average saving’s interest rate is 1.4% after regular “wins”.

But you are not guaranteed to win. In fact, the NS&I says that the odds of winning for each £1 bond number are 24,500 to one.

So, even if you invest thousands of pounds you might not win anything for years.

- Are premium bonds a good investment for children?

On the plus side, premium bonds can be cashed in at any time and, as they are protected by the government, your investment is 100% safe, which some people may find appealing.

Using premium bonds as a main savings account for a child is unlikely to provide the returns that you will get by putting the money into a Junior Isa, or a children’s savings account.

For example, at a rate of 1.4% (the amount the NS&I says investors receive on average) on a premium bond worth £1,000, the return over five years would be £70 – and that is if you win.

By comparison, if you put the money into the Coventry Building Society Junior Cash Isa, with a rate of 3.6%, the interest would be £180 over five years.

Alternatives to premium bonds

Junior Isas

If you're looking to put some cash aside for your kids, Junior Isas (Jisas) are a great way of doing so. These accounts are available to anyone under 18 and tend to offer much higher rates than adult accounts, but there are some restrictions.

Like the adult accounts, everything that you earn in a Jisa is tax-free. This means that you won’t pay any tax on your interest and you won’t be liable for any tax on capital gains or dividends if you choose to invest.

Jisas can be opened by parents with children aged under 16 and then by children themselves when they are aged 16 and 17.

In the 2019-20 tax year, you can save or invest up to £4,368 in a Jisa. You can save for your child either in a Cash Jisa, a Stocks and Shares Jisa, or a combination of the two.

Coventry Building Society Junior Cash Isa 3.6%

Accounts can be opened with a pound in branch, over the phone, online or by post. Interest is paid annually on 30 September and minimum balance is £1.

Danske Bank Junior Cash Isa 3.45%

Minimum balance is £1. This account is available to all and can be opened over the phone or in Danske Bank's branches across Northern Ireland. 

Top savings accounts for children

Putting cash aside for your kids is always a good idea, and the interest rates tend to be much higher than offered in adult accounts. Here are our top picks for children’s savers.

Halifax Kids' Regular Saver 4.5%

This is the top 12-month bond. You can deposit between £10 and £100 in the account each month. Must be opened online or in branch.

Saffron Building Society Children’s Regular Saver 4%

Available in branch or by post. It can be held for a year, by anyone up to 15. You can save £100 a month. When the account matures, savings are transferred to an account paying 0.5%, so remember to make a note to switch.

This article was first written and published by our sister magazine Moneywise.