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Should YOU buy Premium Bonds for children?

two girlsYou’d be forgiven for thinking nothing of any interest happened in the Budget this week and to an extent you’d be right. But hidden away in the details there was something: from March next year, anyone will be able to buy Premium Bonds for children. Currently, only parents and grandparents can buy the bonds for their children/grandchildren. And the minimum investment will go down from £100 to £25 from the end of March 2019 too. The maximum investment will stay at £50,000.

All good news, but are Premium Bonds worth the bother? First the good points: your bonds are entered in a monthly draw and can win tax-free prizes of £25 to £1 million. And unlike the lottery, you can always get your stake back and in addition, prizes can always be claimed – there are some still unclaimed from the 1950s. And money with National Savings & Investments, which runs Premium Bonds, is 100% safe and backed by a government guarantee.

Now the bad points. The chance of winning is low. Every bond (they are denominated in £1 units) has a one in 24,500 chance of winning any prize in a monthly draw. While there have been winners of the big prizes who don’t have huge holdings, those with the maximum holding of £50,000 increase their chances of winning large sums. While the return on the Premium Bond prize draw is currently 1.4%, that doesn’t mean you’ll earn that on your money. This is a game of chance: you could do far better than that – or worse. Indeed, you could win nothing at all.

National Savings & Investments says there are more than 770,000 children with Premium Bonds, holding bonds worth in total £1.1 billion. Since the jackpot was increased to £1 million in 1994 there have been 10 child jackpot winners. Over the past year, there have been 495,000 prizes won by children worth £13.7 million. My son has Premium Bonds – my late mother used to buy them for his birthday or Christmas. Frankly, given how low savings rates are at the moment it seems to me to be worth a gamble having money in Premium Bonds rather than on deposit. And while there are some good kids’ accounts on offer – for example, Nationwide Future Saver (see my blog on it here) you often have to get the child’s parent to deposit the money. With the new rule changes from next spring, you can just buy bonds for a favoured godchild or distant cousin. However, don’t get their hopes up: they’ll have to be very lucky to win the jackpot. But if they do, let’s hope they remember your generosity......

See our guides – including our film - to saving for children here

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Wednesday, 14 November 2018