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Saving for your children: how to build up a nest egg

nest with eggsNS&I Children’s Bonus Bonds are no more. From this month, there are no new bonds being sold as NS&I, the government’s savings bank, concentrates its attentions on its new Junior Isa. These bonds first went on sale in the last century and pay a fixed rate of interest over a five year period with a minimum investment of £25. The last issue of the bond on sale paid 2% a year. There are around 800,000 currently in issue and holders of these will be able to keep them running to maturity. But no new ones will be issued.

If you have Children’s Bonus Bonds, then you should leave them invested until they mature. But then what do you do with the money? And what’s the alternative if you – or a generous relative – want to build up a nest egg for your child. The first option is a Junior Isa. With these, you can save £4,128 in this tax year. You can opt for a cash version – such as the one offered by NS&I which pays 2%, although there are far better rates than this including Coventry Building Society which pays 3.25%: see more Junior Isa rates here. And with inflation at 2.9%, if you don’t get at least that on a savings account then you’re losing money.

However you should consider investing instead – unless your child is within a few years of reaching 18 (when the Jisa matures, although they can carry on with the investment if the child wishes). Over the medium to long term, investing should beat saving although of course there’s a risk you could lose money. Have a look at our invaluable guide to investment Jisas here.

If you’ve already sorted the Jisa and want something else, you could look at Premium Bonds. There’s no risk of losing your stake and you could (though you probably won’t) win a £1 million jackpot in the monthly draw. Indeed there’s no guarantee you’ll win anything – which would make your return worse than nothing as you’ll also have inflation eating into the money. Children can have Premium Bonds as long as they are bought for them by parents, grandparents or grandparents. You can hold up to £50,000 in Premium Bonds – and so can your child. But you’d probably do better by looking at investment – as long as you’re happy with the risks involved.

See our guide to saving for children here

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Saturday, 20 April 2019