Premium Bonds: Parents with more than one child told ‘think carefully’ before buying Bonds | Personal Finance | Finance
The odds of winning per £1 Bond number currently stand at 34,500 to one. There is a limit as to how many Premium Bonds a person can hold though – a minimum of £25 and a maximum of £50,000.
Paul Campion, financial planner at Succession Wealth, discussed the matter recently, highlighting how one person winning a high value prize could cause issues within the household.
He told Express.co.uk: “For any parents of more than one child, I would also advise thinking carefully before buying Premium Bonds for your children.
“The reason I say this, is that we all want to treat our children fairly, however there is the potential for things to go wrong given the nature of how Premium Bonds work.
“If one sibling wins the £1million prize, it can lead to a feeling of it not being fair as one child suddenly has lots of money, while the others don’t, which as a parent can be difficult to navigate.
“As a result, I always advise clients against buying Premium Bonds for their young children, and instead suggest setting up a JISA or Junior Pension.”
So, how do Premium Bonds work?
“With Premium Bonds, rather than receiving interest or investment returns on your money, you’ll be entered into a monthly prize draw,” the chartered financial planner said.
“Prizes range from £25 to £1million, and the more bonds you purchase, the more times you’re entered.
“Prizes won are free from Income Tax and Capital Gains Tax, and your money is safe and fully backed by the Government, which can make them an appealing avenue for your savings.
“If you’re lucky, your Premium Bonds could earn you far more than a savings account or investments if you won one of the larger prizes.
“However, there’s a chance you’ll receive nothing at all.
“One of the reasons that Premium Bonds are attractive is that your deposits are guaranteed.
“When you decide to withdraw your money, you’ll receive the same amount you put in, but once you factor in inflation, your savings will be lower in value in real terms.
“This is because the cost of living rises each year and, unless your savings increase by the same amount, your money buys less.
“In the short term, this effect is minimal. However, look at the impact of long-term inflation and it can be significant.
“To keep pace with inflation, your Premium Bonds would consistently need to win the prize draw, but thanks to recent changes this isn’t as likely as it once was.
“Previously, the prize rate for Premium Bonds was 1.4 percent, this means each £1 bond had a one in 24,500 chance of winning a prize.
“The change meant the prize rate was slashed to one percent, resulting in odds of one in 34,500 per bond.
“That means over one million fewer prizes are now given out each month, and there’s a greater chance that your Premium Bonds will earn nothing at all, leaving your savings at the mercy of inflation.”