Premium Bonds can be purchased by anyone who is 16 years old or older. On behalf of their kid or grandchild under the age of 16, parents, legal guardians, and (great) grandparents can invest.
No interest is paid on Premium Bonds. Instead, your Bonds will be entered into a monthly prize draw to win tax-free gifts.
Premium Bonds – the prize draw
Every month, almost two million awards are distributed to lucky Bond holders whose numbers are determined at random.
For every £1 you invest, you will receive a unique Bond number. Every month, each number has a separate and equal chance of winning a prize.
On the National Savings and Investment (NS&I) website, you may learn more, apply online, and check if you’ve won if you have Premium Bonds.
Is it possible to purchase premium bonds for a family member?
To begin, let me state that Premium Bonds are a safe investment. They are government-backed and come from NS&I (previously National Savings & Investments). However, you should keep in mind that, after inflation is factored in, they will lose purchasing power from year to year.
There are a few things you should be aware of when it comes to Premium Bonds. To begin with, you can only purchase them for someone else if the receiver is under the age of 16; other family members must purchase them for themselves. They are available for purchase for any child, not only your own children or grandchildren. Premium Bonds for kids can be purchased online or by mail.
Adults can cash in their Premium Bonds whenever they wish, while bonds owned by children under the age of 16 can only be retrieved by the parent or guardian who has been designated.
Is it wise to invest in savings bonds for your grandchildren?
Purchasing a US saving bond for your grandchild is considered a secure investment because it is backed by the US government. Savings bonds are especially advantageous because any interest collected is exempt from municipal and state taxes. Prior to January 1, 2012, you could buy savings bonds online or at your local commercial bank. Bonds, on the other hand, are now solely available through the TreasuryDirect website. Series I and Series EE bonds are the two categories of bonds available for purchase as of 2012.
The everyday option: a children’s saving account
Consider a children’s savings account if you want to give your grandchild a gift that won’t break or get uninteresting.
Some children’s accounts pay a significantly greater rate of interest than regular accounts.
Getting your grandchildren to open a savings account at a local bank or building society is a fantastic approach to start teaching them about money.
You might tell your grandchild that if they save money instead of spending it all at once, they would have a larger sum to spend on bigger purchases. Also, emphasize that their money is creating money when they receive interest.
It’s simple to save for grandchildren as a grandparent. If you present sufficient proof of identity, such as a birth certificate, you can create a savings account for them.
- If the money comes from a grandmother, the interest on the child’s account will not be taxed, unlike money donated by a parent, which will be taxed as if it were earned by the parent.
What is the best savings account for a grandchild?
The best rates are usually found in regular savings accounts. However, in order to get the interest rate, you’ll likely have to pay a certain amount each month. We’ve compiled a list of the best-paying regular savings accounts.
You might open a fixed-rate savings bond, which pays a high rate of interest. The money is, however, locked up for a specified period of time, usually between one and five years.
Here you’ll find the greatest fixed-rate bonds. We also provide a list of the top savings accounts for kids.
Learn about Mia’s grandmother, who was able to pay £50,000 in school tuition after selling her property.
The investment option: junior ISAs
If you’re thinking ahead and want to aid your grandchildren when they’re older, get a junior ISA.
A junior ISA for a kid under the age of 16 can only be opened by parents or guardians with parental responsibility. However, anyone can add to the accounts up to the annual limit of £9,000. (2021-22 allowance)
- Junior ISA for stocks and shares: the money is also tax-free, but you can invest it in the stock market.
Cash may appear to be a safe bet, but with interest rates as low as they are, investing for as long as 18 years has a better chance of defeating inflation.
- Let’s say you deposited £500 into a junior stocks and shares ISA shortly after your granddaughter was born.
- Your grandchild’s pot might be worth roughly £14,350 when he or she turns 18. This assumes a 5% annual investment growth rate, minus 1% charges.
Because only the child can take the money out after they turn 18, using a junior ISA ensures that the money gets to your grandchild.
WARNING: They may spend the entire lump sum on fast vehicles and wild parties, but you still have time to impart financial advice.
If they do not spend it, the account will be moved to an adult ISA.
Is it possible for a parent to cash in a child’s Premium Bonds?
Buying NS&I Premium Bonds for a youngster is a fantastic idea because it’s a gift that keeps on giving (possibly).
Premium Bonds can be purchased on behalf of a kid by anybody over the age of 16, thus aunts, uncles, and even family acquaintances can participate.
Furthermore, NS&I’s decision in 2019 to reduce the minimum investment amount from £100 to £25 makes them a considerably more practical, or inexpensive, gift.
Instead, how about purchasing bonds for yourself? The following are the simplest methods for purchasing Premium Bonds.
How to buy Premium Bonds for your child
Parents and legal guardians can apply online, over the phone, or by mail to purchase Premium Bonds as a gift for their children.
Whether you’re buying for the first time or adding to your collection of Premium Bonds, you’ll need to be registered with NS&I.
As previously stated, you must invest at least £25 in Premium Bonds, with each £1 producing one unique bond number.
Every number has an equal chance of winning a prize, so buying more increases your chances of winning.
Until your child turns 16, you will receive confirmation of transactions, money for bonds cashed in, and rewards won.
Do you want to know whether you’ve won anything? The most recent results can be seen in this article.
Buying Premium Bonds for someone else’s child
If you want to spoil your grandchild, niece, nephew, or even a family friend’s child, you can apply online or by mail for an electronic or paper gift card to give to the child.
Your investment will be acknowledged, but only the chosen parent or guardian will be able to manage and cash in the bonds.
Before purchasing Premium Bonds for someone else’s child, there are a few things to consider.
Of course, you’ll want to make sure the parent or guardian is okay with you sending over their information and that they’re happy to look after the bonds.
These facts include the child’s and parent’s or guardian’s dates of birth and addresses, as well as the child’s Premium Bonds holder’s number (if they have one).
Everyone on the application will have their identity and address checked by NS&I, therefore there’s a risk that documentation will be required.
To avoid any unpleasant shocks, inform the parent or guardian that NS&I may contact them to request documentation to establish their identity.
Premium Bonds are detailed in detail, including how to purchase them, how to cash them in, when winners are revealed, and more.
How long does the process take?
If you’re buying the bonds as a present for someone special, you’ll need to prepare ahead and apply ahead of time.
NS&I hopes to open new accounts in seven to ten working days, but because everyone’s name and address on the application form must be validated, it will most likely take longer.
What happens if the child wins?
If the child outperforms the odds and wins a prize, the parent or guardian will have to decide what to do with it.
There’s no need to be concerned about tax implications. While a child cannot earn more than £100 in interest per year from savings, this does not apply to Premium Bonds winnings because they are rewards.
Finally, make sure the child’s information is up to date: there are millions of pounds in unclaimed awards held by bondholders under the age of 16.
What is the maximum amount of money a grandparent can gift a grandchild tax-free?
Giving assets to your grandchildren can do more than help them get a good start in life; it can also help you minimize the amount of your estate and the tax you’ll owe when you die.
Giving the grandchild an outright gift is perhaps the easiest method of presenting. Without having to record the gifts, you can give each grandchild up to $16,000 each year (in 2022). If you’re married, you and your partner can each give such a present. A married couple with four grandkids, for example, can give away up to $128,000 per year without incurring gift tax. Furthermore, the gifts will not be taxed as income to your grandkids (although the earnings on the gifts if they are invested will be taxed). Just keep in mind that any donation could jeopardize your Medicaid eligibility.
Is it possible to make a tax-free gift to my grandchildren?
You have options beyond the $5.43 million lifetime exemption if you decide to give presents to your children or grandchildren while you’re still living. Here are four things to talk about with your estate planner about:
- Each year, the amount of tax-free gifts is capped. Each year, the Internal Revenue Service (IRS) establishes a maximum gift-tax exclusion. It will cost $14,000 per person in 2015. You can gift that much to as many people as you choose, and each spouse is limited to $14,000 every year.
If you and your spouse have two grandkids, you can individually give $14,000 to each of them, totaling $56,000 in tax-free gifts. Remember, these are gifts that are tax-free in excess of the $5.43 million exemption limit.
- Medical, dental, and tuition costs are all exempt from the cap. If you wish to make a gift for your child’s or grandchild’s medical or dental bills or tuition, you may be able to do so without violating the yearly gift limits. You must, however, pay the doctor, dentist, or school immediately to guarantee that these contributions are tax-exempt.
There is no educational exclusion for books, supplies, or lodging and board, despite the fact that tuition expenditures are exempt. Furthermore, the medical exclusion does not apply to sums paid for medical care that are reimbursed by your insurance company.
If your grandchild receives financial aid, be cautious about paying his or her tuition directly to the college. A contribution made directly to the kid by someone other than the parent will be recognized as cash support, reducing the amount of aid available to the child.
- A 529 college savings plan allows you to give more. Although contributions to state-sponsored 529 plans are not exempt from the gift tax limit, you can make five years’ worth of contributions at once and avoid the gift tax. That implies you might contribute $70,000 without triggering the gift tax in a single year.
Most states allow you to deduct your donation from your state tax return up to a certain amount. There is no tax deduction at the federal level.
Your earnings will be deferred on federal and most state tax returns after your money is in a 529 plan. When the money is taken out for eligible education expenses, no tax is owed. The donation limitations are considerable, ranging between $300,000 and $400,000 per beneficiary on average.
One piece of advice for grandparents: If you open a 529 for your grandchild, he or she may lose a lot of financial aid. However, there is a workaround. Have your child open a 529 plan, and then you can contribute to it.
- Keep an eye out for the “Kiddie Tax.” This rule was enacted to ensure that parents did not gift stocks to their children under the age of 24 in order to avoid paying taxes. If the interest or dividends from the gifted shares exceed $2,000, they will be taxed at the highest rate applicable to the parents.
How much money may grandparents give their grandchildren in the United Kingdom?
Gifts of money from grandparents may make a significant difference in the lives of grandchildren, from school fees and university to putting money towards a deposit. Giving little and often, based on existing Inheritance Tax (IHT) exemptions, could help you decrease or prevent any IHT liability.
So, how much can you give tax-free to your grandchildren? Each grandparent can make an IHT-free gift of up to £3,000 in any one tax year. The balance of £3,000 can be carried forward to the next tax year if the entire £3,000 is not utilised in a single tax year. So, if you don’t offer any monetary presents in one tax year, you can give away a total of £6,000 the following year. If not used in the following year, any unused funds are forfeited. In a nutshell, it cannot be carried over to the third year. This exemption is only applicable to gifts made once in a lifetime.
You can also give an unlimited number of minor £250 gifts in each tax year, as long as the receiver is different each time. Furthermore, presents provided in honor of a grandchild’s (or great- grandchild’s) wedding or civil partnership are exempt up to £2,500; this rises to £5,000 if your own child is marrying.
How do I get my grandchildren to buy savings bonds?
- Go to www.treasurydirect.gov for further information.
- Purchase the savings bond you choose (Series EE or Series I) in the denomination you want ($25 to $10,000).
Q: I’m thinking of putting some money aside for my grandchildren. What are the greatest ways for them to save money for the future?
In the 1980s, when my grandparents wanted to invest money for me, they usually bought a US savings bond. While I thank my grandparents for doing so, things have changed and better solutions are now accessible.
What you wish to do with the money and your grandkids’ current ages are probably the most important deciding considerations.
Contributing to a 529 savings plan for their college education can be a good choice if you want to save for their education. You can choose to put your contributions in a number of investment funds, which will grow tax-deferred until withdrawn, and any investment earnings will be tax-free if they’re used for qualified educational costs. Contributing to a 529 plan might also save you money on state taxes in several jurisdictions.
Consider your grandchild’s age while selecting investment funds for a 529 plan. You can choose stock-based funds or similarly aggressive options if your grandchild is extremely young and has a decade or more till college. It’s a good idea to be a little more conservative when your grandchildren near college age.
You can open a brokerage account for the benefit of your grandchild if you don’t wish to invest specifically for education. These accounts are referred to as UTMA or UGMA accounts, and they allow you to keep control of them until your grandchild reaches a particular age – usually 18 or 21 years old.