From Pocket Money to Prizes: Are Premium Bonds Right for Kids?
Parents are always looking for ways to make saving money exciting and rewarding for their children. One option that has stood the test of time in the UK is Premium Bonds, a government-backed savings product that offers the chance to win tax-free prizes instead of earning traditional interest. But are they really a good choice for young savers, or is it more of a gamble than a guaranteed way to grow money? Let’s take a closer look.
What Are Premium Bonds?
Premium Bonds are issued by NS&I (National Savings and Investments), a secure, UK government-backed savings provider. Each £1 bond gives the holder a chance to win prizes in a monthly draw, with prizes ranging from £25 to £1 million. Unlike traditional savings accounts, Premium Bonds do not pay interest. Instead, the excitement comes from the potential of winning tax-free prizes, making them a unique way to save.
Why They Appeal to Parents and Children
There are several reasons Premium Bonds are popular for children:
- Safe and Secure – With government backing, the money invested is protected. Parents can rest easy knowing the original investment won’t be lost.
- Tax-Free Prizes – Any winnings are free from tax, which can be especially attractive for long-term savings for education, hobbies, or future milestones.
- Fun and Engaging – Children often enjoy the element of surprise, checking monthly to see if they’ve won. This can help make the idea of saving money more exciting.
- Flexible Access – Unlike some savings products, funds in Premium Bonds can be withdrawn when needed, providing easy access to cash for emergencies or planned expenses.
Points to Consider
Despite their appeal, there are some things parents should keep in mind:
- No Guaranteed Returns – Since there’s no interest, there’s no certainty of earning anything. Children may not see immediate financial growth if luck doesn’t favour them.
- Average Returns Can Be Lower – Over time, Premium Bonds may offer lower returns compared with interest-bearing savings accounts or Junior ISAs.
- Luck Plays a Role – Winning prizes is entirely random. While the possibility of a large win is exciting, it’s important for children to understand that savings growth is not guaranteed.
Alternatives to Consider
For more predictable growth, parents might also look at Junior ISAs, which offer tax-free interest or investment growth. Combining a Junior ISA with a small Premium Bonds allocation can balance security, growth, and the fun of prize-winning.
Conclusion
Premium Bonds can be a safe, flexible, and enjoyable way to introduce children to saving, offering the thrill of tax-free prizes alongside secure investment. However, because returns are not guaranteed, they are best used as part of a broader savings strategy. For parents looking to teach financial responsibility while keeping saving fun, Premium Bonds can be a worthwhile addition but not the only option.
