I’ve said in this column before that I’m a fan of Premium Bonds – but only for higher-rate taxpayers who have enough cash to buy the maximum £50,000.
So the latest initiative by National Savings & Investments leaves me cold.
In August, it announced that anyone can now buy Premium Bonds for children under 16 years old.
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In the past it only allowed parents and grandparents to buy the bonds on behalf of a child. Now the way is open for aunts, uncles and family friends to buy them as gifts, too.
Another change earlier in the year reduced the minimum purchase of Bonds from £100 to £25. So quite modest cash presents can now be in the form of Premium Bonds. However, each Bond has only one chance in 24,500 to win a prize in each monthly draw.
That means that 25 Bonds are only likely to win a prize once in every 80 years or so.
And that prize is almost bound to be for £25. In other words, there is an even chance of doubling that money in a human lifetime. As children generally do not pay income tax, the fact that prizes are tax free won’t be of any advantage to them, either.
However , there is another way to look at these sums. If that £25 was put into a Junior ISA, it could earn at most 3.6% a year – which is less than a pound.
So the loss of interest by buying Bonds rather than a Junior ISA is small. But for that minute loss the child does get a minuscule chance of winning a big prize.
The odds against winning £1,000 in a year with a £25 Bond is about 140,000 to one and it is about 137 million to one for the magic £1m, which two lucky people do win each month.
Some might think that is a worthwhile chance to take with the interest. The Bonds themselves can be cashed in at face value at any time and are not at risk. The chances of winning the Lotto draw – which under-16s cannot enter – are about 45 million to one.
For more information, visit nsandi.com.