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Premium Bonds for children?

Kids | Investing for Children Helpful? 2

Asked by smiller, submitted 07 October 2009.

Open Quote Are premium bonds a good way of investing money for our children. What are the odds of winning?End Quote

Answered by Justin on 19 November 2009

The potential advantages of Premium Bonds are that any winnings are tax-free and there's the chance, albeit very small, of winning a big prize.

The tax benefit is largely irrelevant for children as they're unlikely to pay tax on their savings in any case (they have the same annual income tax allowance as adults, £6,475 for the 2009/10 tax year).

What are the odds of winning the £1 million monthly jackpot? If you save the minimum £100 stake then the chances of the big win are around to 400 million to 1 (it varies a bit from month to month) - you're about a 1,000 times more likely to be struck by lightning!

However, you have around a 240 to 1 chance of winning at least £25 each month, a decent return on £100 if you are lucky enough to win.

You can't lose your initial stake, so it's not exactly a big gamble. But no wins = no interest so you might do better putting the money in a children's bank or building society savings account. Bear in mind children can't buy Premium Bonds until they're 16, so the Bonds will need to be held by a parent or grandparent until then.

Worthwhile for children? Personally I wouldn't bother, I'd either invest the money or stick it in a decent savings account. Nonetheless, Premium Bonds are a very popular way of having a (relatively) safe flutter.

Read more about Premium Bonds here & Saving for Children here.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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