Investment Types - Childrens Bonus Bonds
Childrens Bonus Bonds
Investments  >  Types   >  Investments for Children   >  Childrens Bonus Bonds

Children's Bonus Bonds

Children's Bonus Bonds are a risk-free option for saving for your child.

They are offered by National Savings & Investments (NS&I), an agency of the government backed by the Treasury, and deposits are 100% guaranteed.

Children's Bonus Bonds have a fixed rate of tax-free interest for five years, and a bonus paid at the end if they are held for the full five year term.

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

How much can I invest?

These bonds are bought out as separate 'issues', each with a limit on how much you can put in and their own interest rate.

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.

Parents or grandparents can buy bonds for children under 16 as gifts.

Positives: All the money is paid out free of income and capital gains tax.

Drawbacks: The rate on Children's Bonus Bonds is low - and even lower if you don't keep the money invested for the full five years. The rate in 2011 is just 2.5%, assuming you stay in for the full term.

Shop around to see if you can find a better low-risk savings option for your child from banks and building societies. Many of these higher earning accounts will have the interest rate fixed for a year or more.

And children's savings are tax-free provided they don't earn more than their personal tax allowance (worth more than £7,000 a year in interest).

In addition, these accounts will usually allow you to get at the cash sooner than the five years it is locked away for with the Children's Bonus Bond.

You can get more information from the NS&I website, from Post Offices, or by calling 0845 964 5000.

An alternative

The Government introduced Junior Isas in November 2011, which are another option for parents, grandparents, family and friends to save into for children.

The money will be locked away until the child reaches 18, so the main advantage is that the child can't be tempted to spend it beforehand.

The limit will be £3,000 a year. Junior ISAs are replacing Child Trust Funds, which are now closed to new customers. Any child without a CTF can have a Junior ISA.

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