Can I maximize the Premium Bonds for my two children to increase their own chances of winning?

I am in the fortunate position of being able to invest for both of my children. I also save diligently for myself in investments and pensions.

I have a surplus of money to distribute, and have already maxed out my personal £50,000 Premium Bonds allowance, and also have Income Bonds with NS&I.

If I were to put £50,000 into Premium Bonds for both of my children (who are currently under 4 years old), what would happen to the prizes? Will they be deposited into my current account?

Ideally I wouldn’t want them to access the £50,000 when they turn 16 because they have already made investments elsewhere. So would I be free to cash in the bonds when they are 15?

In short, I would use their Premium Bonds payouts to increase my own chances of winning a big prize, but I want full control over the money.

Helen Kirrane from This is Money replies: Premium Bonds are loved by millions of savers for their monthly lottery-style draw, where two savers win £1 million, as well as millions of other cash prizes ranging from £25 to £100,000.

The prizes won in the draw are tax-free, unlike a standard savings account where you have to take your personal savings allowance into account – so many wealthier savers turn to Premium Bonds when they’ve maxed out their Isa and other tax-free allowances.

Your question poses a moral and ethical dilemma. When you start Premium Bonds for your child under 16, you act as the ‘responsible person’ and can manage their bonds online.

There’s technically nothing stopping you from opening bonds for your children, maxing them out, and cashing them out before they turn 16 – if they can provide the bonds themselves.

This may be considered morally wrong or unethical by some, but it is not illegal, one expert tells me.

However, it could invalidate the child’s bonds and any prizes they win, as the NS&I customer agreement states that the bonds and any prizes they win are their property.

For expert advice about your situation, we spoke to two experts in the field of financial planning, Aaron Banasikan independent financial advisor at Ascot Lloyds, and Arthur Childs a chartered financial planner with Flying Colours.

Aaron Banasik replies: It’s fantastic that you are being so proactive in securing both your own financial future and that of your children.

Balancing your investments across different products, such as Premium Bonds and Income Bonds, while thinking long-term is truly admirable.

Your question about using your children’s Premium Bonds to win a big prize raises some important considerations.

When you purchase Premium Bonds for your children, the bonds must be in their names.

All prizes won are legally theirs and winnings are paid out to the bank account you specify when creating the account.

Until your children turn 16, you can manage these bonds on their behalf and redeem them at any time.

However, it is essential to note that any money placed into their Premium Bonds account will be considered a gift to them. As a responsible adult, you must act in their best interests.

Ethically and morally, it would not be appropriate to use your children’s Premium Bonds as a means to increase your chances of winning or to safeguard your money, as the money ultimately belongs to them.

If maintaining full control over the funds is important, there are other, more flexible options to explore.

An NS&I spokesperson answers: Our Customer Agreement states that all Bonds purchased and all prices paid in connection therewith belong to the child.

The parent or guardian named on the application is responsible for securing funds for the child until the child turns 16. At that moment it passes to the child.

Arthur Childs replies: It’s great to hear that you are actively saving for yourself and your children.

And even better to hear that you’ve done your homework; you already benefit fully from your personal Premium Bonds allowance and also invest in income bonds.

You are now looking elsewhere to invest, particularly in Premium Bonds. Premium Bonds are Britain’s largest savings product and more than 24 million people currently save over £127 billion.

Premium bonds are very flexible. You can put money in and take it out at will. The interest paid is tax-free and is determined by a monthly prize draw.

If you win with Premium Bonds, instead of receiving the money, you can simply arrange for the money to be reinvested (unless you already have the maximum £50,000 in your possession).

They can be held by parents or guardians for someone under the age of 16 and expire once the holder turns 16.

You say you want to keep the bonds in your child’s name to possibly win cash prizes. For that reason, you do not want your children to have access to the invested money.

In this case, if you are the person responsible for the Premium Bonds, you can close the account before it reaches the age of 16 to access your money.

Although we question the morality of this approach.

And as for the prize money, again you, as the nominated person in charge of the account, are free to do whatever you want with any winnings.

But remember: prizes above the £50,000 investment limit must be withdrawn, while prizes below can be reinvested.

It is also worth remembering that the average return on Premium Bonds is usually lower than the inflation rate and as a result the purchasing power of your savings will be eroded over time.

So it is worth considering whether the average profit will be greater than the loss of purchasing power of your money.

Where else could you save?

Aaron Banasik replies: In your personal circumstances, it is excellent that you already use NS&I products such as Premium Bonds and Income Bonds.

However, have you also thought about making full use of your Isa allowance? You may already be, but just a reminder… for the current tax year you can contribute up to £20,000 to an Isa, protecting the money from income and capital gains tax.

After April 6, an additional €20,000 can be added each tax year, meaning you could save €40,000 within a twelve-month period, and €80,000 within two years, by taking advantage of four annual allowances.

This approach allows you to retain full control of the funds while still being able to reserve them for your children’s future, ensuring flexibility in how and when the money is accessed.

If your aim is to save specifically for your children, you may want to consider contributing to a Junior Isa).

The annual allowance for a Junior Isa is £9,000 per child per tax year.

Funds within a Jisa grow tax-free, but are owned by the child and become accessible to the child once they turn 18.

Opening a pension for your children is another progressive strategy. You can contribute up to £2,880 per child annually, and the government will top this up with tax relief up to a total of £3,600.

These funds remain hidden until at least age 57, making this a long-term option to ensure financial security later in life.

If maintaining control of the money until a later date is a priority, you may want to consider setting up a trust for your children.

With a trust, you can decide when and how the money is passed on and accessible to your children.

However, it is important to note that placing money in a trust is considered a gift, so you would be relinquishing personal ownership of the money.

Setting up a trust involves legal paperwork and may incur associated costs, but it provides peace of mind knowing the money is safe and managed according to your wishes.

It’s worth speaking to an independent financial advisor to explore the best type of trust for your situation and ensure it meets your family’s needs.