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Children’s Bonds are a tax-free investment issued by NS&I. Children’s Bonds allow investments to be made in the child’s own name and there is no tax to pay on the interest. The maximum investment is £3,000 per issue (minimum £25 per issue) and the term is five years. At the end of the five-year term, the bond can be cashed in or reinvested in another bond for another five years. The bond finally matures on the first five-year anniversary after the child’s 16th birthday.

This can be a useful product for generating income and a nest egg for your children as it is not affected by the rules concerning income generated by gifts from parents for children. However, a penalty of 90 days’ interest is charged if the bond is cashed in early.

For issue 35, each £25 unit earns an interest rate of 2.50% AER.

Example:
Freddy invests £3,000 into an issue 35 Children’s Bonus Bond to be held for the benefit of his one-year-old daughter Kelly. The bond earns interest at a rate of 2.50% AER guaranteed over five years.

After five years the bond is worth £3,394.22. Freddy has earned tax-free income for his daughter of £394.22.Save