In 2003, NS&I launched their Children’s Bonds: fixed rate, tax-free accounts that paid interest at 2% AER, up to a balance of £3,000. They were a popular choice for parents and grandparents to pay in funds for children, but were withdrawn in September 2017. Children’s Bond savers whose saving period continued after this date were allowed to keep their funds in place until their term ends (meaning some will still hold Children’s Bonds until 2022) – but for those who have no access, and for those whose term is coming to an end, what are the other children’s investment options available?
NS&I Junior ISA
The NS&I Junior ISA was designed as a replacement for Children’s Bonds. It’s a tax-free product that can be used to save up to £9,000 per year (at current rates), with the money only able to be withdrawn once the child turns 18. The interest rate sits at 1.5% AER (variable), making it less competitive than other Junior ISAs on the market, but it may appeal to those lured by the trusted NS&I name.
Children’s savings accounts
Child savings accounts are often chosen by those who want to put money aside, but want that money easily accessible in case it is needed. There are various types available, including easy-access accounts from which money can be withdrawn at any time, and regular savings accounts for those who are able to commit to making monthly payments. Interest rates generally tend to be higher for the latter, but be warned: if the interest earned on the account exceeds £100, the parent responsible for paying money in may be liable to pay tax on the interest.
Junior ISAs are a tax-efficient way to save money for those aged under 18: once the holder turns 18, the account is automatically switched to a regular adult ISA. Anyone can pay into a Junior ISA, up to a maximum of £9,000 per year in 2021-22, but if a child has already qualified for a Child Trust Fund, opening a Junior ISA in their name is not possible.
Junior ISA funds can be put into either cash or stocks & shares – or a combination of the two. Interest rates are generally higher than those offered with adult ISAs, and children are unable to withdraw the savings until they reach the age of 18, making this a good product for teaching children about the value of money, and the benefits of saving.
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