- Gifting to Junior Isa on premium bonds can give a child a better 138% discount
- Premium bonds now offer an average annual rewards fund rate of 1%
- No chance to earn anything unless a prize draw is won
- Those investing through stocks and shares can generally expect a return of 5%
- Whereas the best paying cash junior isas pays an interest of 2.5%
New research shows that parents who invest or save for their child’s future through Junior Isa instead of premium bonds will leave the child much better.
According to an analysis by Wealth Management Firm, Quilter, it was found that those who invest in shares and stocks of Junior Isa can generally expect to leave their child two to three times better.
Its calculations suggest that if £3,600 were kept in stock and the Junior Isa was first made available in 2011, it would currently be worth around £10,000.
Cash accounts account for three-fifths of the £1 billion put into Junior Isaas in 2019/20.
This compares to only £4,000 if the money was invested in premium bonds during the same period.
Premium bonds have grown in popularity during the pandemic and the number of eligible £1 bonds has increased from 86 billion to 113 billion since March last year.
The minimum investment amount is £25 and rule changes in 2019 mean aunts, uncles, godparents and even family friends can gift premium bonds, making them a popular gift.
It is worth bearing in mind that the nominated parent or guardian will manage and eventually be able to redeem the bond.
The odds of each £1 bond winning a prize are currently set at 1 to 34,500 and the prize money rate is currently 1 percent.
According to numbers crunched by data scientist Andrew Zelin, savers investing £1,000 in premium bonds would have to wait around 3,500 years for a 50:50 chance of winning the amount they put in.
Looking at past performance, Quilter’s analysis suggests that it would be better to keep savings for a child’s future away from premium bonds.
In 2011 the maximum limit was £3,600 and calculations show that if the entire amount were put into stocks and shares and invested in the IA UK All Company Index it would be worth £6,918 today.
If it were invested in the IA Global Index, it would be worth £9,580 today assuming a 0.5 percent fee.
But if the same amount were invested in premium bonds over the same period, it would typically be worth £4,025, using historical rewards fund rates that yield an average return of 1.25 percent.
Are premium bonds worth holding?
Premium bonds are probably the UK’s best-loved savings product but are they worth holding?
The Savings Lottery offers 100% government backed security and a theoretical 1% return – up to luck.
But a new report highlights just how unlikely people are to win the big prize. In fact, unless you have a large amount in bonds, you should expect a long wait for anything over £25.
Data scientist Andrew Zelin said that even a saver with £15,000 in bonds should expect to wait 14 years to win a prize of £50 or £100.
But does it matter or are they a more useful source of regular £25 prize returns? On this podcast, we explore premium bonds by looking at odds, studies on the big rewards, what our readers have told us, and how much people hold.
Abigail Banks, a financial planner at The Private Office, said: ‘The deadline for access to money within Jr. ISA may be more than 18 years, arguing for considering investing the funds to maximize the potential for returns. Is. Available by cash.
‘Of course the value of an investment can fluctuate, but given the time frame, even if the value of the investment falls in the short term, it should have enough time to recover before it becomes necessary.
‘If you contribute £50 to a ZISA account at the time your child is born, and every month after 18 years, with funds generating a growth rate of 5 per cent per annum, the estimated future value of your investment will be £ 17,300.
‘If you contribute a maximum of £9,000 each year for 18 years at a growth rate of 5 per cent, the estimated future value of the investment could be around £266,000.’
It is worth noting here that in a Junior Isa the money belongs to the child and when they turn 18 they have full access to the money.