In the eyes of most savers, National Savings & Investments – the Government’s savings bank – can do little wrong, even when it inexplicably cuts interest rates as it does from time to time.
It’s seen as a port in a storm when financial crises grip the nation (think 2008) or when we fear that bad news is just around the corner – for example, recession or, perish the thought, the prospect of a future Marxist government running the country into the ground.
Equally, it’s a harbour in sunnier times, providing households with a range of products safe as houses (Government guaranteed) and that should form a key part of any savings portfolio. Ballast to sit alongside the racier shares and investment funds.
Small beginnings: Now any adult can buy Premium Bonds for a child under 16
Given its ‘safe’ label, National Savings has particular appeal among those with one eye on retirement – or who are already enjoying life post work. Its monthly income bonds remain particularly popular with many elderly savers, paying 1.15 per cent interest (gross) on savings up to £1 million.
Yet the savings organisation is shifting direction a tad. It wants to appeal to a younger generation, not directly but through reaching out to parents, grandparents and beyond.
Its Junior Isa, for example, currently pays an appetising 3.25 per cent on savings up to the permitted annual limit of £4,368. A tax-free savings haven that can be used to provide a child with a financial lump sum when university or independence beckons.
But it’s the good old Premium Bond that National Savings is busy remodelling in its move to encourage a savings culture among younger people.
This product, part of the savings landscape for nigh on 158 years, provides bond holders with the chance every month of winning a prize between £25 and £1 million.
Winnings are free of tax and the average prize rate is equivalent to an annual 1.4 per cent.
Of course, some savers fare better (my middle son Mark, for example, who can’t stop winning prizes) while others (myself included) go months without winning a penny.
At £25, the minimum purchase is not intimidating while the maximum holding of £50,000 is more generous than other National Savings products (for example, guaranteed income or growth bonds where investments are restricted to £10,000 per bond issue).
Having long allowed parents and grandparents to gift Premium Bonds to children and grandchildren (hence Mark’s Premium Bond war chest), National Savings has now taken off the blinkers completely.
The result is that adults can now buy Premium Bonds for any child under the age of 16. It means aunts, uncles, godparents and family friends can give children the gift of a Premium Bond.
The organisation believes the move will prove popular. Research it has done recently confirms that cash gifting among adults often extends beyond immediate family (children and grandchildren). Some 40 per cent of adults who gifted cash to a child over the last year, it says, did so to a relative who was not their own child or grandchild.
Ian Ackerley, National Savings chief executive, says: ‘By opening up Premium Bonds to more people, we hope to encourage inter-generational saving, kick-starting young people’s savings habits and making National Savings an integral part of young people’s savings journey.’
Certainly, there seems an appetite among the older generation to gift Premium Bonds. More than three quarters of a million under- 16s currently have bonds, on average having a holding worth just short of £1,600.
Since the £1 million jackpot prize was introduced 25 years ago, ten under-16s have won the jackpot while in this month’s draw some 50,000 prizes were won by under- 16s – the largest being £5,000.
The appetite for bonds bought on behalf of children has been fuelled by a number of factors. Paltry savings rates on offer from most banks and building societies have been a contributory factor. But so has National Savings’ commendable move in making bond purchases as pain free as possible.
Last year, it allowed grandparents to buy Premium Bonds for under- 16s online rather than just via post – a move that caused a surge in bond purchases. It is adopting the same approach for aunts, uncles, Uncle Tom Cobley and all – with purchases possible both online and by post.
Of course, Premium Bonds are not without their drawbacks and there are better savings options for children – as some of the experts below are quick to point out. Prizes are not guaranteed and while the bonds can always be sold at face value, it doesn’t protect them from the ravages of inflation.
But when all is said and done, Premium Bonds do make super financial gifts and if the latest move by National Savings encourages more children of today to become the adult savers of tomorrow, we should laud them, not pick faults.
What do experts really think of Premium Bonds?
Fan: Anna Bowes love the Bonds
As co-founder of savings advice service Savings Champion, Anna Bowes spends her days pointing people in the direction of the best bank and building society accounts.
But she is also a big fan of Premium Bonds. ‘I love them,’ she says, ‘especially in the low interest rate environment we find ourselves in.’
Although her last win (£25) was nine months ago, she says National Savings’ move to encourage more adults to buy the bonds for under-16s is welcome. ‘It’s great news,’ she says. ‘Anything that spices up the savings culture in this country is welcome.’ Anna now plans to use the more relaxed rules to buy bonds for her godchildren and nieces when their birthdays next come round.
Helena Morrissey, head of personal investing at Legal & General, also applauds National Savings’ move although she describes Premium Bonds as ‘more like a small scale lottery than an investment’.
She adds: ‘I really do welcome the relaxation in the rules. We need to encourage more inter-generational and family investing to help the younger generation.’
Although the oldest of her nine children were gifted Premium Bonds by grandparents as babies, she says winnings have been sparse. Yet the new rules may tempt her to buy some bonds for her niece and nephew as Christmas presents. She also hopes the Government will now look at extending the same flexibility to Junior Isas. Currently, a Jisa can only be opened on behalf of a child by a parent or legal guardian.
Natalie Ceeney, former boss of the Financial Ombudsman Service, welcomes anything that gets people to save, particularly at an early age. ‘If the change in Premium Bond rules encourage people to save, that’s great by me.’ But she prefers tax-free saving via an Isa.
Baroness Altmann, a former Government Minister, says Premium Bonds will now be ‘an excellent birthday idea’ for her nieces, nephews and friends’ children. ‘Better than money in the bank,’ she says. She currently holds the maximum £50,000 and has been encouraging her 87-year-old mother to buy them too.
Lone wolf is Jason Hollands, a director of wealth manager Tilney. He has never bought Premium Bonds for himself or his two children, aged ten and 11. ‘The bonds are as exciting as watching paint dry,’ he says.
Instead, he prefers to save for his children through investment-based Jisas. He says: ‘I invest on their behalf each month into investment trust F&C. Yes, it’s volatile, but in terms of delivering long-term returns it’s a no contest.’