Buying premium bonds for the kids, they could offer a good investment backed by the HM Treasury

May 8, 2019

Across portfolios supported by Enable’s IFA’s in Bishop’s Stortford buying premium bonds for the kids has been traditional ways of helping children in your family save. NS&I Premium bonds are unlike other savings or investments, where you earn interest or a regular dividend income.

If you save with Premium Bonds you’re entered into a monthly prize draw where you can win between £25 and £1 million tax-free and on average, 1 in 3 people win a prize each year with a £1,000 investment. NS&I Premium Bonds are essentially a savings account and you can put money into and take it out whenever you want.

You buy £1 bonds and each bond has an equal chance of winning, so the more you buy, the more your chances improve. You must be aged 16 or over to purchase Premium Bonds but you can buy them on behalf of your child, grandchild or great-grandchild. You need to invest at least £25 to start off but then you can then keep buying bonds for your child until you reach the maximum holding of £50,000.

Premium Bonds are backed by HM Treasury, so all the money you invest in is a 100% secure, but are they worth it? Premium Bonds are the UK’s biggest savings product, about 22 million people use them saving almost £79 billion in them. Yet with a low Premium Bond rate and the fact for most people all savings are now tax-free are Premium Bonds really the best place to save money for the children long term?

Premium Bond prizes (the interest) are paid tax-free. However, for most people that’s no longer an issue since the personal savings allowance was introduced. In practice, this means around 95% of people no longer pay tax on their savings meaning Premium Bonds no longer have a tax advantage. Enable’s IFA’s in Bishop’s Stortford can help you look at the best ways to save for your family.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individually tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain.

Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.

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