Childrens Bonus Bonds

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Childrens Bonus Bonds

If you want to build up a nest-egg for your offspring, whether it's for a deposit on a house or flat, or to help them through college, Children's Bonus Bonds are one of your savings options.

They are very low risk, and have a fixed rate of interest for five years plus a bonus added on the fifth anniversary.

Both the interest rate and the bonus are guaranteed, so you know what you will get back at the end of the five-year term.

This makes for a very secure investment, and one that is tax-free.

Bonus issues

The bonds are available in separate "issues", each of which has its investment limit and rate of return, depending on general interest rates at the time. You can invest from £25 to £1,000 in each issue, and at the end of five years you can either cash it in, or reinvest it in a new issue, with all money free of income and capital gains tax. Parents or grandparents can buy bonds for children under 16 as gifts.

Children's Bonus Bonds

The draw-back is that Children's Bonus Bonds, like other National Savings products, may only just keep pace with inflation. You won't qualify for the bonus if you withdraw your money out before the end of the five-year term, and if interest rates rise, the rate on the bond doesn't increase.

You will lose all your potential interest if you cash it in within a year of starting. If you are saving for the long-term you may be advised to put at least a portion of your money into equity-based products, which have the potential for greater returns, although they are also more risky.

• You can get more information from the National Savings website (www.nsandi.com), from Post Offices, or by calling 0845 964 5000.

The Government has recently introduced the Child Trust Fund. Parents, family and friends will also be able to contribute to this fund.

• Click here for more information.