Premium Bonds have been a favourite gift from grandparents for decades. They’re simple, government-backed, and come with the excitement of a monthly prize draw. But are they actually a good idea for children in 2025?
The short answer: Premium Bonds can be a fun and safe way to introduce kids to saving, but they’re rarely the best vehicle for long-term growth. Let’s look at why.
If you want to see how a pot could build up over time, try our Premium Bonds Calculator — it shows how monthly contributions and reinvested winnings add up, and the odds of prizes along the way.
Why Premium Bonds appeal to parents and grandparents
- Safe and simple: Every £1 is backed by HM Treasury. Unlike investments, the balance won’t fall.
- Prize excitement: Children love the idea of “winning.” A £25 prize feels more magical than a few pounds of interest.
- Flexible gifts: You can buy Premium Bonds for a child, and they’ll stay in their name until they’re 16 (after which control passes to them).
- No tax to worry about: Prizes are tax-free, which avoids the tricky rules around children’s savings interest and parental gifts.
For small amounts—birthday money, Christmas gifts—Premium Bonds tick a lot of boxes.
The hidden downsides
The main drawback is growth potential. Children often have long time horizons, and Premium Bonds aren’t designed for compounding wealth:
- Lower expected returns: With a prize fund rate of 3.60% in 2025, the “average” return may lag behind inflation and is lower than many savings accounts.
- No guaranteed return: A child could go months or years without a win, which may feel discouraging.
- Opportunity cost: A Junior ISA (cash or stocks & shares) can shelter up to £9,000 a year tax-free, and over 10–18 years it’s likely to grow more reliably.
See our fuller discussion of long-term alternatives in Premium Bonds vs Stocks & Shares ISA: Which Makes More Sense?.
When Premium Bonds make sense for children
- As gifts: grandparents and relatives can give a safe, fun present without needing to open a bank account.
- For short-to-medium-term savings: if the money might be used in a few years (for a bike, a holiday, or a first car), Premium Bonds keep it safe and accessible.
- To spark interest in money: checking for prizes each month gives children a way to engage with saving.
When to consider alternatives
- For education or house deposit funds: where the horizon is 10+ years, a Junior ISA (especially stocks & shares) usually makes more sense.
- If you want regular, guaranteed growth: a children’s savings account or Junior Cash ISA will pay consistent interest.
- If you’re aiming for long-term compounding: Premium Bonds won’t match stock market growth.
Mixing and matching
Plenty of families do both: a small Premium Bond holding for fun, plus a Junior ISA for serious growth. That way children enjoy the prize element now, while still building a real long-term nest egg.
Final takeaway
Premium Bonds are a good idea for children as a safe gift or short-term saving pot. They’re not a substitute for long-term investing, but they can sit alongside other accounts.
To see how a child’s Premium Bond pot might grow (and what their monthly prize odds look like), try the Premium Bonds Calculator.
For wider context, read our main guide Are Premium Bonds Worth It in 2025? or explore more in the Premium Bond hub.