Martin Lewis has explained why Premium Bonds are often unsuitable for children, calling them the "worst candidates" for the savings scheme.
Premium Bonds popularity and returns
On The Martin Lewis Podcast, the Money Saving Expert founder said NS&I Premium Bonds are the most popular form of savings in the UK, with more than £136 billion held within them. However, he argued that "we tend to give them to the people they're least suited for."
The current prize fund rate stands at 4.35%, but Mr Lewis warned: "Most people with typical luck will win less than that, and you can earn more just in a standard, top, bog-standard easy-access savings account."
Who should and shouldn't hold Premium Bonds
Mr Lewis explained that Premium Bonds suit those who hold close to the maximum permitted amount of £50,000, "and those who are already going to pay tax on other savings." He added: "They've used up their Cash ISAs, they've used up their savings allowances, where the tax-free nature of the bonds comes into play."
Turning to less suitable holders, he said: "People you're giving small amounts to who don't pay tax, like children. But we often give Premium Bonds to children. Now, I know some people think, yeah, but they're safe because it's NS&I, you know, it's government-backed. But the maximum you can put in Premium Bonds is £50,000, and these days, all UK-regulated savings are protected up to £120,000 per person per financial institution."
Mr Lewis reiterated that Premium Bonds "are worse for people who are putting relatively small amounts of money in and don't pay tax - pretty much all children." He added: "The irony of Premium Bonds is we think of them as a great thing to give to children; children are the worst candidates for Premium Bonds."
