HM Insights

NS&I Closes Children's Bonds - what does this mean for those saving for children?

National Savings & Investments (NS&I) has announced it is scrapping its Children's Bond for new savers from September as it introduces its Junior ISA.

There are currently more than 800,000 Children's Bonds in existence, with parents and grandparents having £500 million invested with the purpose of saving for children under 16.

Every five years, customers could renew the deal for a further term until the bond reached the five-year anniversary after the child's 16th birthday. The 36th and current issue of the bonds, which were sold in April 2017, pays 2% tax-free interest on a minimum investment of £25 and a maximum investment of £3,000.

Money Piggy Bank Saving

What has NS&I said?

So far, NS&I have confirmed that existing customers holding Children's Bonds will be able to keep the product until maturity. Bonds that mature prior to September can roll over into a new five-year term.

NS&I has not confirmed what will happen to existing bonds once they reach maturity, nor has it confirmed the exact date in September that new sales will close.

An NS&I spokesman confirmed that existing customers holding Children’s Bonds will be able to keep the product until their current term matures. NS&I will be writing to customers whose bonds are approaching maturity to explain what their options are.

Is NS&I's Junior ISA worthwhile?

The spokesman also confirmed that one option available to customers would be to transfer the funds into its Junior ISA.

The ISA will allow adults to save £4,128 tax-free each year for children under 18 and can be opened for £1. Parents and legal guardians can open the account, but anyone can contribute provided the £4,128 allowance is not exceeded.

The Junior ISA offers 2% interest and comes with a 100% capital security guarantee as NS&I is supported by HM Treasury. It is only available online and can only be managed online.

Jill Waters, NS&I's acting retail director, said: "More money is now deposited with NS&I online than any other individual sales channel and our Junior ISA offers parents a simple and modern account for their children’s savings."

“Our new Junior ISA will also allow third-parties to deposit into the product electronically, which means that grandparents and other relatives and friends of the child or family can add additional funds once the account has been opened".

However, the 2% interest rate means that NS&I's Junior ISA is far from the best option. It fails to make the top 5 in the best buy tables. The top option from Coventry Building Society offers 3.25% interest and can also be opened with £1. If the maximum £4,128 was paid into that Junior ISA, the annual interest would be £144, as opposed to £83 with NS&I.

Nationwide, Halifax, TSB and Tesco Bank all offer Junior ISAs with 3% interest, which would pay £124 a year. These authorised banks also cover savings up to £85,000 with the Financial Services Protection Scheme.

Asset protection - get in touch

There are, of course, plenty of other ways in which parents and grandparents can save for children and grandchildren. For advice on all aspects of asset protection please contact your usual Harper Macleod contact.