Premium Bonds attracts 70,000 new savers under 16 in six months

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Premium Bonds attracts 70,000 new savers under 16 in six months



MORE than 70,000 savers aged 16 and under have signed up to Premium Bonds in six months – but is the scheme actually worth it?
National Savings and Investments (NS&I), the brand behind the bonds, saw a 40 per cent jump in the number of youngsters opening an account since February.
1 Are Premium Bonds the best way to save for your children?Credit: Alamy
It follows a rule change in February that saw the minimum investment cut from £100 down to £25.
Children can’t buy the bonds themselves – at the moment, only parents, legal guardians or grandparents can do it on their behalf, although NS&I plans to expand this to any adult in future.
Premium Bonds work differently to a traditional savings account because you don’t earn interest.
Instead, the bonds you invest in are entered into a monthly prize draw where you can win anything between £25 and £1million.
What are the best children’s savings accounts?THESE are the top paying savings accounts for children under 16:Regular savings accounts

Rate: 4.5 per cent fixed for 12 months
Min deposit: £1 to open
Max deposit: £100 per month
Based on £50 per month saved over 12 months your balance (including interest) would be: £614.53
Easy-access

Rate: 3.5 per cent
Min deposit: £0
Max deposit: £5,000 a year
Interest earned on £1,000 balance over 12 months: £35.57
Junior Isa

Rate: 3.6 per cent
Min deposit: £0
Max deposit: £4,368 for the year 2019/20
Interest earned on £1,000 balance over 12 months: £36

So far, it’s already turned 10 under 16s into millionaires.
But are the bonds really better than having a savings account if you’re 16 and under?
Government-backed Premium Bonds are a way for parents to save for their children’s future tax-free.
The NS&I say that on average, bond holders make 1.4 per cent but of course there’s also a high chance that you don’t win anything.
But since the launch of the personal savings allowance (PSA) in 2016, all interest earned on savings is tax-free anyway unless you’re a basic rate taxpayer earning more than £1,000 a year interest (the rules are different for higher rate and additional rate taxpayers).
“Tax-free interest on Premium Bonds was once a huge selling point, but since the PSA was introduced, around 95 per cent of savers will no longer pay tax on their savings,” said Rachel Springall of comparison site Moneyfacts.
“Depending on the amount saved and of course luck, the expected return on Premium Bonds can be beaten.”
The best rates can be found on regular savings accounts, although it’s worth noting that you’re limited to the amount you can put in every month.
You’ll also face a penalty if you withdraw your cash, unlike with Premium Bonds.
For example, the top-rate is offered by Halifax on its Kids’ Monthly Saver at 4.5 per cent, which can be opened with just £1, but you’re capped at putting in £100 a month.
It’s also a variable rate, which means the amount of interest it pays may change, but if it stays the same for a year and you put in the maximum amount every month, you’d earn £29.70.
How to keep track of Premium Bond prize winsIT sounds simple but the easiest way to make sure you hear about Premium Bond prize wins is to make sure your postal address is updated with NS&I if you have moved since buying your Premium Bonds.
This means that if you are sent prize cheques in the post they should go to the correct address.
You could also switch any prize win payouts so that they’re paid directly into your bank account rather than being issued to you in the post.
To do this you need to register online for NS&I’s online and phone service.
Once done, login to ‘Your profile’ in the top menu and click ‘Paperless options’. Click ‘Change’ for your Premium Bonds then select ‘Paperless’.
Remember to click ‘Save’ when you’ve finished. Or you can ask NS&I to set this up for you over the phone on 08085 007 007.

Ms Springall suggests looking into opening a Junior Isa, which is also tax-free, if you’re looking for more reliable returns.
The top-rate Junior Isa account is currently with Coventry Building Society which pays 3.6 per cent and can be opened with just £1.
If you contributed £25 a month, for example, over 18 years then you’ll earn £2,205.82 interest over the full term, unless the building society chooses to drop the rate.
Even NS&I offers a competitive rate at 3.25 per cent on its Junior Isa, which means you’d earn £1,945.91 interest after 18 years on £25 a month.
Top-rate easy-access account offer a greater return than Premium Bonds too.
These types of accounts let you withdraw money at any time but you’re usually penalised for the freedom with a lower interest rate.
Nationwide pays 3.5 per cent on savings although the rate drops to 0.5 per cent if you make more than one withdrawal a year.
For more information, check out our guide to the best children’s savings accounts.
Ms Springall adds: “Building a savings pot for a child’s future can help towards paying for university fees or building a fund to get them on property ladder.
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“Although saving rates can be beaten in other types of accounts for children, Premium Bond prizes are ideal for big savers as they do not count towards the PSA.
“Anyone who is saving more than this allowance and are subsequently being taxed on their savings may turn to these vehicles.”
Are you a Premium Bonds winner? Check to see if you’ve scooped a prize in July’s draw – two winners even won the jackpot.

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