I still have the £1 premium bond that my Grandfather gave to me when I was born. I still haven’t won anything, but on the upside it is still worth £1! It was quite a traditional thing back then for a premium bond to be bought for someone as a gift, either for a baby or for the parents of a new child and, statistically, a few must have won prizes and the gift turned out to be much better than expected. That said, I suspect there are a lot of lower denomination Premium Bonds lying in drawers throughout the country that are still worth their face value.
Premium Bonds can still be bought, and the chances of winning a prize of up to a million still exists, albeit at odds of 30,000 to 1! If you would like to know more, have a look at the NS&I website. https://www.nsandi.com/premium-bonds The big difference now compared to when I was born is the initial cost, or if you prefer – investment. If you want to try your luck with Premium Bonds now, then the starting price is £100 and if you are a parent or grandparent then they can still be held for a child, but what if you want to give a lower amount, or a varying amount now and again or even a fixed regular amount?
Well, here are a few ideas:
While you’re on the NS&I website, take a look at their Children’s Bond. Currently they are offering a tax free return of 2% fixed for 5 years and the minimum investment is £25. Maximum age at commencement is 16 so investments can be staggered so that the last one matures at age 21. As with Premium Bonds, the Children’s Bond carries no risk to the original deposit.
There are many easy access deposit accounts aimed at children, a quick search on a comparison site will soon reveal who is offering the best interest. Some even offer better rates if a commitment to regular saving is made. Putting money in these accounts couldn’t be easier, but getting it out is also just as easy, so if you would prefer your gift to be more of a definite long term plan, it may not be the route for you. They are however, ideal accounts for youngsters to learn how to manage their money, save up for something, understand how interest works and, for the older ones, the use of cashcards.
Junior ISAs offer both cash as well as stocks and shares saving for children. This tax year, 2017-18, savings of up to £4128 can be made in either or divided between both types of plan. Regular monthly savings are also allowed with typically £25 per month being the minimum for a stocks and shares Junior ISA. Remember though that just because they are for children, there is no concession with regard to the risks involved. Unlike the Junior Cash ISA, which is straightforward and simple to manage and understand. The Junior Stocks and Shares ISA, while offering the temptation of greater investment returns over a long term, still has the risk of losing money in times of poor investment and will attract fund management charges which, as with all investments, will erode returns. If you are going down this route, then make sure you fully understand the charging structure before you start.
With all of these options the money will be in the name of the child and some can only be accessed at a certain age. Junior ISAS for instance can only be accessed at age 18. There is an option to transfer the funds into an adult ISA, but there is also the option of full withdrawal. When we start these plans, 18 years seems an awfully long time away, but it definitely passes quicker than you may think and you need to consider whether you want your child to have full control over what has been saved for them.
Contrary to popular belief, children are liable for paying tax and have the same tax free allowance as an adult. This year it is £11500 and while it would take a fair lump sum to generate that amount in interest it is always worthwhile looking at the potential tax consequences of any savings or investments you may undertake.
A guest post by George from the Retired Broker.
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