Premium bonds “unsecured return” according to an expert
Investment experts say there is a better way to invest for your children. One popular type of investment has turned an investment of £ 10,000 into £ 77,000 in just 10 years, and everything is tax-free.
Government-backed National Savings & Investments (NS&I) Premium Bonds are easy to gift to a child or grandchild and could even turn them into a millionaire.
You can invest a minimum of £ 25 and a maximum of £ 50,000, with the bonds entering a monthly drawer where they can earn prizes of between £ 25 and £ 1million, all tax free.
You have to be at least 16 years old to buy premium bonds, so often people buy them on behalf of children or grandchildren.
Laura Suter, personal finance manager at AJ Bell, said winning prizes is exciting, but you trust luck and your chances of success are now slimmer than ever before.
Premium bonds could make your kid a millionaire – with great luck
Suter said: “The annual price rate, which is what the average bondholder receives each year, has been continuously reduced and now stands at just 1% per annum.”
At that rate of return, £ 1,000 of premium bonds would have dropped to just £ 1,196 after age 18, although of course you might be lucky.
Suter said a competing tax-free investment called stocks and junior Isa stocks will provide a superior return in most cases.
Family and friends can donate up to £ 9,000 to an Isa junior this year on behalf of a child.
You can invest either in cash or in stocks and shares, and all returns are accrued tax-free and belong to them when they turn 18.
At this point, the Junior can be converted to an adult Isa and remain free from all income and capital gains taxes.
Anyone who invested £ 9,000 each year for 18 years would pay their child £ 265,851 on their 18th birthday, if they were invested in junior stocks and Isa stocks which were growing at an average rate of 5% per year.
Even much smaller amounts can reach something big over an 18-year-old, but Suter said he resists the temptation to put the money into a Junior Cash Isa.
Today’s highest Isa junior cash rate is 2.5% for the Loughborough Building Society, Suter said. “It’s a variable rate and it just might go down, leaving you with the hassle of changing or letting your money earn minimal interest. “
If you save £ 50 a month and the rate drops to 0.5% after two years, the child will end up with £ 11,367 at 18.
However, invested in the stock market and generating 5% growth per year, it would be worth £ 17,723.
It’s money that could be used towards tuition, a first-time car, or even save for a property deposit.
READ MORE: Be careful when giving money to your family – 5 mistakes to avoid
Still, Suter said seven out of 10 junior Isa’s are cash accounts, rather than stocks and stocks. “Although it may seem a little more complicated or risky now, your child may well thank you in the future. “
You can subscribe to a ready-to-use Isa junior on online platforms such as AJ Bell Youinvest, Bestinvest, Fidelity, Hargreaves Lansdown, Interactive Investor and Vanguard LifeStrategy.
Suter offers three funds. “Fidelity Index World is a low cost passive fund that tracks the global stock market and provides exposure to many companies around the world at low fees. “
If you want a green investment for your child’s future, she advises Liontrust Sustainable Future Global Growth, which targets companies that promote sustainable growth.
His latest suggestion is the very popular Scottish Mortgage Investment Trust which invests in future trends such as electric vehicles or genomics.
DO NOT MISS :
Premium bonds: the four things to know before investing [GUIDE]
HALF £ 1million Jackpot Prime Bonds – Should You Give Up NS&I? [WARNING]
Costly mistakes on Junior Isa and children’s trust funds [REVEAL]
With a Junior Isa, children can see their money grow over time
Many Junior Isa platforms offer investment trusts, which have solid, long-term experience.
If a parent or grandparent had invested a lump sum of £ 10,000 in an average investment trust 18 years ago, it would now be worth £ 77,400, or a return of 674%. That’s an average of 12 percent per year.
Small business-focused investment trusts have done the best of all, according to Annabel Brodie-Smith, communications director at the Association of Investment Companies.
“The best performing sector over the past 18 years has been European small businesses, with a total return of 1,050%. Small business trusts in the UK and Asia Pacific have also done well.
It can be a more rewarding alternative to long-term premium bonds.