Premium Bonds: Assessing Their Value for Children's Savings

Premium Bonds are a favored method for gifting savings to children and grandchildren, offering a government-backed, tax-free avenue with the potential for winning prizes. Approximately 864,656 child Premium Bond holders have an average of £3,261 in their accounts. Data shows a growing number of young winners, with 203,683 under-16s having won prizes so far this year, a significant increase from previous years.

Child Premium Bond Winners and Prize Distribution

In 2025, a record 1.3 million prizes were awarded to individuals under 16, and 672,279 prizes have been won by this age group year-to-date. While children have increasingly won smaller prizes, the top £1 million jackpot has been awarded to just five under-16s in the past decade. Last year, a record 21 children won the £100,000 prize, with six achieving this so far this year.

The average amount held by winning children is £26,638, which is lower than the average holding of £40,363 for adult winners. However, 22,314 child accounts hold between £40,000 and the maximum £50,000.

How to Invest in Premium Bonds for Children

An initial investment of £25 is required to open a Premium Bond account for a child, with a maximum holding of £50,000. Parents or guardians must set up the account, which involves providing child and personal identification details. Prizes are sent to the nominated parent or guardian or can be reinvested. Although parents or guardians can access the funds before the child turns 16, the money legally belongs to the child. This rule is in place partly to prevent individuals from exceeding their own £50,000 limit by opening accounts in children's names for their own benefit.

Alternatives for Children's Savings

While Premium Bonds offer a chance for prizes, the odds of winning substantial amounts are slim, particularly for those with smaller holdings. Many child Premium Bond accounts hold less than £1,000, potentially yielding minimal returns over time. For guaranteed interest, a Junior ISA (JISA) is recommended. Parents can contribute up to £9,000 annually to a cash or stocks and shares JISA. Some cash JISAs offer rates around 4.15 percent, while NS&I provides a 3.7 percent rate. Investment platforms also offer low-cost stocks and shares JISAs, which can offer significant long-term growth.

For example, saving the maximum £9,000 annually with a 5 percent return from birth could result in a pot of approximately £261,000 by the time the child reaches adulthood.

Pension Savings for Children

Child pensions, specifically Self-Invested Personal Pensions (SIPPs), offer tax advantages. Contributions receive a 25 percent tax boost from basic-rate tax relief. While annual contribution limits are high, a £3,600 limit is in place for non-earners, with parents or grandparents able to contribute £2,880, receiving £720 in tax relief. A monthly contribution of £50 could grow to over £164,000 within 40 years, assuming a 7 percent average annual return. However, pension funds are not accessible until age 55 (rising to 57 in 2028), unlike Premium Bonds or JISAs which offer earlier access.