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19 Aug 2019

NS&I loosens rules on giving children premium bonds as gifts

Now, anyone aged 16 or over can buy premium bonds for those under 16

NS&I allow anyone to buy premium bonds for children as a present from today, including all family members, godparents or friends of the family.

Previously, only a child's parents, grandparents or guardians could buy premium bonds in a child's name.

This change was first announced in the October 2018 Budget, and is aimed to encourage a stronger savings culture for young people.

Find out more about how to buy premium bonds for children, and whether alternative financial gifts could be a better option.

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How will the premium bonds changes work?

As of 19 August, any adult over the age of 16 can join grandparents and parents/guardians in buying premium bonds for children.

Premium bonds can be bought by post or online.

Parents or guardians have the additional option of buying premium bonds over the phone, or transferring cash from another NS&I account in the child's name.

Any bonds bought in a child's name will be managed by their parent or guardian until the child turns 16.

In February 2019, the NS&I cut the minimum bond investment from £100 to £25, making it easier for those on all budgets to purchase premium bonds.

For bigger spenders, the maximum amount you can buy is £50,000.

Surge in gifting premium bonds to children

The number of premium bonds being bought for children has already seen an increase over the past few months.

Purchases for youngsters increased by almost 60% between August 2018 and June 2019, with around 261,000 people aged 16 or under being given premium bonds.

This is partly down to changes in August 2018, which allowed grandparents to go online to buy premium bonds gifts, rather than just via post.

This, coupled with the minimum investment reduction, means that premium bonds are an easier gift option than ever before.

Opening up premium bonds to additional family members and friends could mean an even bigger gifting surge is on its way.

Are premium bonds a good investment?

While premium bonds are a secure place to put your money - NS&I is backed by the Treasury, meaning the cash is 100% safe - there is a question of whether the cash would be better off elsewhere.

That's because the child won't earn regular interest on their savings with premium bonds. Instead, each individual £1 bond will be entered into a monthly prize draw, with possible prizes ranging from £25 to £1m.

The NS&I estimates that a person with average luck could earn a return of 1.4% over a year, but there's no guarantee of winning anything at all. If your child's money doesn't win over several years, the cash will lose value in real terms.

That said, 10 people aged under 16 have become millionaires after winning a premium bonds jackpot - so there's always the dream of a windfall for your family.

Alternatives to premium bonds

If you'd rather ensure the money you put away for a child increases in value, there are several other options to consider.

Children's savings accounts

Children's savings accounts often have better interest rates than adult accounts. The Halifax Kids' Monthly Saver account, for instance, pays 4.5% AER as long as you pay in between £10 to £100 a month.

With this particular account, grandparents or other family members or friends can open accounts for a child, but they'll need the permission from the parents or legal guardians.

Parents or guardians paying into a children's savings account should be aware of the '£100 rule' - if the savings generate more than £100 in a tax year, the interest will be taxable, and will be added to the parent's tax bill. This doesn't apply to gifts from other family members or friends.

Junior Isas

In the 2019-20 tax year, you can pay up to £4,368 into a Junior Isa, and all interest is tax-free, so parent's won't have to worry about the '£100 rule' at all.

Cash could earn up to 3.6% AER, which is the top rate currently offered by Coventry Building Society. Seeing as the child won't be able to access the money until they turn 18, the effect of compound interest over the years could build up a generous nest egg.

While only parents and legal guardians can open and manage Junior Isa accounts for their children, anyone - including grandparents and friends - can pay into it.

Investments for children

As an alternative to cash savings, investments can be held on behalf of a child in a bare trust or a designated account.

This has the advantage of potentially reaping higher rewards than cash, and there's plenty of time for investments to grow, which should smooth over any dips in the market.

However, you could still lose money, and the amount your child will receive is not guaranteed. What's more, unlike savings, your money may not be covered by the FSCS should the investment company fail.

As the investments will be in the parents' name, any other family members or friends who wish to pay in would have to do so via the parent.