National Savings and Investments (NS&I)

National Savings and Investments (NS&I), formally known as Post Office Savings Bank, is part of the government's Executive Agency and reports to the Chancellor of the Exchequer.  The purpose of NS&I is, therefore, to provide a totally secure place for people to save, backed by the Government and to provide the Exchequer with a source of funding (i.e. public borrowing).

Due to the government's backing, NS&I is able to provide some worthwhile saving products that are totally tax-free.  Currently, you can invest up to £93,000 for tax-free returns.

This can be achieved with the following combination of ISA, NS&I premium bonds and savings certificates. 
                                                                                                    

PRODUCTS	AMOUNT
Direct ISA or Cash mini ISA	£3,000 per tax year
Premium Bonds	£30,000 in total
3-year Index-linked Savings Certificates (14th Issue)	£15,000 per Issue
5-year Index-linked Savings Certificates (41st Issue)	£15,000 per Issue
2-year Fixed-interest Savings Certificates (35th Issue)	£15,000 per Issue
5-year Fixed-interest Savings Certificates (84th Issue)	£15,000 per Issue
Total	£93,000 in total

National Savings children's bonds are a great way to save for your children without the tax-man getting his hands on it. The benefit of buying National Saving children’s bonds is that the £100 rule does NOT apply.  

With Children’s Bonus Bonds, interest and bonuses are all completely free from UK Income Tax and Capital Gains Tax implications. Even if your children start work and become taxpayers before cashing in their Bonds, they still won’t have to pay tax on the interest.

They are tax-free and so can be particularly good value for any young people who are taxpayers.

However, they are only available to those under age 16 and must be bought by an adult. The bonds pay a fixed rate of interest and can be held until the child reaches 21. To get the best return, the Bonds must be held for five years to qualify for a bonus.

The minimum investment is £25 and is sold in £25 units for larger sums. Each child can have up to £3,000-worth of the current issue of bonds.

The current interest rate of 4.25% is below par when compared with the top paying banks. For example, £3,000 invested with the National Savings children's bonus bonds will have a return of £3,694.04 (according to their online calculator) after 5 years. However, a 5-year Savings bond with Abbey eSaver can earn you £3,768.07, an additional savings of £74.03 compared to the NS&I savings potential.

Unlike most high street bonds, if your children need access to the money before the end of the term, all or part of the Bond can be cashed in without notice.  If you cash in the bond within the first year, no interest will be earned.

Premium Bonds

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Premium Bonds, unlike interest payments, offer investors an opportunity to win tax-free prizes. When a person invests in Premium Bonds he/she is allocated a series of numbers, one for each £1 invested. The minimum purchase is £100 (or £50 when you buy by monthly standing order), which provides 100 Bond numbers and, therefore, 100 chances of winning a prize. You can hold up to £30,000.

With 23 million bondholders holding £26 billion worth of Premium Bonds nationwide, Premium Bonds are a fun, yet serious way of saving, combining the chance of winning tax-free prizes with the peace of mind that comes from knowing your capital is 100% secure.

Any prize you receive is free of UK Income Tax and Capital Gains Tax and you do not need to declare it on your tax return.

Anyone aged 16 or over can buy Premium Bonds. Bonds can also be bought for children under 16 by their parent, guardian, grandparent or great grandparent. Premium Bonds cannot be held jointly and are not transferable to another person.

If you are a parent or guardian buying Premium Bonds for children under 16, you'll need to give their and your details on the application form.

Friends and families can also invest on behalf of the children, also required to give the children's details, the parent's or guardian's and their own.

The parent or guardian will be responsible for the Bonds and will receive notification of the purchase. The Bond certificates will be sent to the purchaser to confirm their purchase. Any prizes will be sent to the parent or guardian.

Prizes
As well as two £1 million jackpots, you can win anything from £50 to £100,000 for each Bond number you hold. The table below shows the full range of prizes:

Prize band Prize value	Number of Prizes per annum
Higher value £1 million	2
7% of prize fund 100,000	7
50,000	13
25,000	27
10,000	67
5,000	134
Medium value 1,000	1,838
Lower value 100	63,819
87% of prize fund 50	1,205,668
Total value £76.6 million	1,277,089

With the odds currently running at 24,000 to 1 on winning any prize, it is sensible not to invest all your children savings in Premium Bonds alone. If you are going to invest in premium bonds, it should be part of an overall investment strategy.  Nonetheless, a small investment could well bag you and your family the £1 million pound prize. Good Luck!

For further information on National Savings and Investments, you can contact them on 0845 964 5000 (Lines open from 7am until midnight, 7 days a week). Children’s Bonus Bonds can also be bought over the counter at your local Post Office branch.

Index-linked savings certificates are inflation-beating bonds where the value of your investment increases in line with inflation and earns guaranteed interest rates. However, unlike most bonds, your returns are tax-free. Therefore, your savings are never less than the rate of inflation.

You can receive potentially up to 4.75% variable interest rates (which is the equivalent to 7.92 gross for higher rate taxpayers). Anyone aged seven or above can invest but even younger children can have their certificates bought for them.

You can purchase a minimum of £100 worth of index-linked savings certificates but you can choose the maximum value of £15,000.  Whatever the value the returns will be tax free.

Other related articles from MyEggNest

Children and Taxation
Children's Bank and Building Society Accounts
National Savings and Investments (NS&I)
Child Trust Funds (CTFs)
Friendly Societies
Children's Stakeholder Pensions

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