Saving for my child - premium bonds/other options?

[PurplePansy05]

Hi All. I've recently had a baby and am starting to think about saving for his future. Ideally I'd like to start in a few months' time following the end of my maternity leave.

I would like to be able to:

• have access to the savings (for example, should a really rainy day come, I'd like to be able to withdraw the money and then repay it in the future)
• stay in control of the money - I wouldn't like it to go automatically to DS once he's 16 or 18, but rather decide how much to release to him and when - for example as a gift towards his further qualifications, buying a car/house etc. He might not need it all at 18 and I don't know how good he'll be with money, so might not be wise to release all the savings at once.

What sort of products would you say work best in practice?

Has anyone tried premium bonds? I understand I could buy them in my own name and then just pass the money to DS, but is it even worth it? I read the likelihood of getting a prize is low. Is it the case you need to buy at least £25 worth of premium bonds every month to be entered in the monthly draw?

From what I read, I think it might have to be just my own open savings account and maybe premium bonds as well, but the interest rates on savings are abysmal and I might not win anything in the bonds draw, so the money will lose value quickly.

I will likely have at least between £50 and £100 to save monthly for him - or more, but I don't want to overcommit with the upcoming nursery fees and possibly another DC soon.

Some practical advice would be greatly appreciated as I don't know if I'm missing out on something that could work out better! TIA.

Don’t bother with Premium Bonds for starters, OP!
NS&I reduced the prizes, so now your investment will lose more money due to inflation than you could expect to win in prizes. It’s almost as pointless as wasting the money on lottery tickets, albeit keeping the original stake money.
Could you set up an ISA for your baby instead, and top it up whenever you have spare cash to invest? Personally, I would just invest in your own name and be free to choose when and how much to gift to your child when they are older.

Are you using all your own ISA allowance? If not, I’d use that. If you open an ISA in the child’s name he’ll be able to access it at 18.

Downside is that you won’t start your 7 years running for inheritance tax purposes but it may be that this is not relevant to you.

Having an emergency cash fund in premium bonds isn’t crazy either but it will lose value compared to inflation. You should think of these things separately- your emergency cash and your investments.

I agree with you about not putting it into your child's name so they can't get their hands on it at 18 and blow it all!
I invested in stocks and shares isa in my name from when my children were small and used some of it as a gift to them for a house deposit. Any cash given to the children was spent on them when small and they kept it when older. They weren't given large amounts of money though.

I have premium bonds in mine and the kids names. I also have an ISA. I have had better returns on the premium bonds than any other savings. Yes it's true prizes have recently changed but we are still doing OK.

Premium bonds are bought with a minimum £100. Whilst it shouldn't be the case anecdotally the more recent bonds seem to win more prizes....feel free to Google that. As I say mathematically there should be no difference but there is......so if you continue to invest every few months you should see returns.

Thanks all!

To answer the questions - I completely agree the emergency stash and investments should be separate. We should be able to separate them again in about 5 years' time. At the moment we are stretched to the limit with my maternity, childcare going forward and paying off house renovation. Things all came together not in the way we originally planned them, as they do in life sometimes. But I still find it important to save a little for DS's future and I'd only dip into it in a total emergency because we're skint until childcare costs less and we remortgage. So absolutely will separate the two and will have more money to play with which I could then put into a fixed savings account for example, or invest maybe with higher risk for better returns.

I do have my own ISA and so does DH, but the rates are so bad, aren't they!

I had the same thought about Premium Bonds being like lottery tickets, actually. But I guess with interest rates on ISAs being so bad now, with PB there's a chance to win something at least?

Could someone clarify, please, what is the minimum purchase of PB, is it £25 (I read they've reduced it?) and do I need to buy them monthly to be part of the draw?

Thanks very much for responding, really appreciate it xx

And regarding 7 years and inheritance tax, sorry to be dumb, but how does this apply to an ISA in my name and giving money to DS?

Are we talking about not paying tax on gifts if I live longer than 7 years from the date of the gift? I'm mid 30s now so will be early 50s when DS is a grown up. I'd like to think I'll live for a fair bit longer after that, hopefully, so if that's what you meant then I'm not sure how relevant this is? Forgive the baby brain

Also if I withdraw the money from my ISA and give him cash here and there or buy an actual item for him, say a car, this won't be subject to any tax, will it? xx

I have premium bi ds in my own name and have the maximum allowed. I never had to put £25 in per month. I physically couldn't now.

Dd had some bought by my grandfather and won £25 last month. We haven't paid anything in for her for a while.

It sounds like you actually need two pots, one for your rainy day fund and one to save for the children. As yours are young and you have time for 'the miracle of compounding interest' to work on whatever you save for them, I would put it into a S&S ISA. That way you'll have the control you're after and the money will grow more than it would in a savings account. This is what we've done. We use DH's ISA allowance to save for our children in a set-and-forget Vanguard S&S ISA. It's a fairly aggressive allocation (Lifestrategy 80), but it has a long time to grow and ride out bumps in the market. We have a separate easy access savings account for emergencies and big expenses because we don't want to have to pull out investments if the market is down.

Re your question about ISA and tax, the point of the ISA wrapper is that you put in your money after it has already been taxed, so it is tax free growth and withdrawal.

Ah sorry, I didn't read all of your earlier responses properly, I see you've mentioned separating the pots later on because of your current financial situation.

I actually think that right now, given your current circumstances, your first goal should be to focus on building that rainy day fund and to embrace the fact that it is a rainy day fund. You want to make sure your family can withstand financial shocks before thinking about prepaying your child's future expenses.

You don't need to buy PBs monthly. What you have probably heard is that they enter the draw the month after you buy them.

I invested in premium bonds. Started a couple of years ago. Myself and partner each pay £100 a month and have about 5k between us. We won nothing in the first year and this year we’ve had £125 winnings. It’s still a rainy day fund. Think it takes about a week or so if we need to get it back out again.

@Littlegoth that's very much my thinking. And as soon as we're more comfortable, I'd consider something that offers better returns wrt savings for DS and I'd transfer the money whilst building up our rainy day fund separately (assuming hopefully nothing really bad happens in the next couple of years). In fact DH is due a promotion and I'll likely get a slighr rise too and looking to change jobs anyway, so things might ease off sooner. Ideally I don't want to postpone saving for DS, I'd like to get into a good habit as soon as possible. May I ask how do you find out the monthly draw results, do they email you? xx

@PurplePansy05 Yes, that's it. It's a benefit of putting the ISA in DS's name but a small one given the tiny chance it becoming relevant.

Yes, they email you if you win. You can also check on the website or app.

Thank you @JumperandJacket xx

Op I have three savings for dc.

One is nationwide account, I added small amounts in and now has a few hundred in. It's been useful for additional things to buy dc that were unexpected on top of our normal child savings for us to use for clothes and school.

Older dd has it in her name now and she used some to add to bday money for a computer.. That sort of thing.

That's for her and I'm hoping it will teach her money management.

Then tyere is a cash isa. This has bday and family money in.
It's a few grand was 3%. Now a paltry 1%.

That's in her name and is for driving lessons and a car, insurance and that sort of thing.

Lastly she has a stock and share isa that a small inheritance went in.

That return has been on average 25% and has gone up thousands for her.
That's unfortunate in her name but for house deposit sort of thing.

Aside from that I have a separate pot for clothes and school and dh has one as well for the dc running costs.

On your situation id use up any isa allowance on stocks and shares isa. Low cost index funds... Look at vanguard.

The smallest amount of PB you can buy each time is £100. But you just buy with your debit card whenever you have the funds. No need for a set monthly amount.

My pb have had 75 win in two years.
My stocks isa has roared ahead. I only keep pb money for car issues.

I have the savings for my DTs with Scottish Friendly which guarantees to pay out at least what I put in at certain points. It’s funny, I’m quite happy with higher risk investments for everything else, but this money for my babies I wanted nice and safe thank you very much! It’s up at about 11% more than I’ve put in currently which is nice. It’s also in my name so if life falls apart completely I can access it which was important to me.

My kids also have a JISA with them that I put a little in each month. Won’t amount to masses when they turn 18, but will buy some booze/drugs/car/holiday if it doesn’t tank when they hit 18!

I got topcashback at a rather hefty rate for opening the Scottish friendly accounts which was a lovely bonus!

I’ve also being toying with the idea of setting up a pension for them, got as far as filling the forms out and got stuck on where I’d like to invest. This was 5 months ago and counting…

I have PB....we have a total of 50k...so far this year , from March, we have won £375...better than bank interest....isa's pay about 0.01% now....waste of time...inflation is really around 8 or 9%....not sure what i would do really....?