Is it unclear whether a child should receive NS&I Premium Bonds or a cash Junior ISA as a gift? Many parents and family members face the same dilemma: seek tax-free growth and guaranteed interest-like returns, or choose a prize-based, low-risk but variable outcome? This guide delivers a direct comparison of Children’s Gift Accounts: NS&I Premium Bonds vs Cash JISAs with practical rules, examples and clear next steps.
Key takeaways: what to know in 1 minute
- Cash JISAs offer tax-free interest and predictable growth — suitable for longer-term, steady saving for 5+ years.
- Premium Bonds provide prize-based returns with no income tax but no guaranteed yield — better for short-term flexibility or modest, hopeful gifts.
- Ownership, access and who controls the account matter — Junior ISAs are locked until 18; Premium Bonds can be redeemed earlier but prizes are random.
- Contribution limits and gifting rules differ — the JISA annual limit (current at time of writing) must be followed; gifting into existing JISAs has paperwork implications.
- Choose by goal, not by novelty — use Premium Bonds for short-term accessibility and chance-based upside; use Cash JISAs for predictable, tax-free compounding and planning.
Children’s gift accounts: Premium Bonds versus cash JISAs — the basics and definitions
Junior ISAs (JISAs) are tax-advantaged savings accounts for under‑18s. There are two broad types: cash JISAs (saving with interest) and stocks & shares JISAs. This guide focuses on cash JISAs when comparing with NS&I Premium Bonds as gift options.
NS&I Premium Bonds are savings certificates where instead of interest the capital is entered into a monthly prize draw. Both products are tax-efficient in different ways for UK residents.
What counts as a child’s gift account
- Cash JISA: An account held in the child’s name; contributions are subject to the annual Junior ISA allowance. Interest is tax-free.
- Premium Bonds for a child: Bonds can be bought in the child’s name or held by an adult but assigned to the child; prizes are tax-free.
For authoritative product details: see GOV.UK on Junior ISAs and NS&I Premium Bonds.
How tax-free Junior ISAs compare to NS&I prizes: returns and predictability
A direct comparison requires looking at the expected return, variability and tax treatment.
Expected return: average vs guaranteed
- Cash JISA: Normally pays a set interest rate. Expected return = quoted interest (compounded), guaranteed unless bank changes rate.
- Premium Bonds: Have a published prize fund rate (indicative at time of writing at NS&I), but individual returns are probabilistic. Expected return = prize fund rate × capital, but actual outcome has high variance.
Tax treatment and reporting
- Both are tax-efficient for individuals: JISAs are tax‑free accounts; Premium Bond prizes are tax‑free and do not appear on self-assessment for the child. No income tax on either while held as the child’s assets.
Illustrative numbers (example scenarios)
- If a cash JISA pays 3.0% AER and £1,000 is saved for 5 years, the balance is predictable.
- If £1,000 is placed in Premium Bonds and the prize fund rate is 3.5% (indicative), the expected average annual return is similar but outcomes vary widely — many savers win nothing while some win large prizes.
Risk, returns and prize odds: what parents should know
Premium Bonds carry effectively no capital risk — the initial deposit is safe and redeemable. The trade-off is return uncertainty.
Prize odds and variance
- NS&I publishes a prize fund rate (indicative). The actual prize distribution uses fixed odds per £1 bond for monthly draws. Odds and prize sizes determine the distribution: many small prizes, few big ones.
- For small amounts typical of gifts (£25–£1,000), the probability of winning a prize in any single month is modest; chances accumulate over time but remain uncertain.
When risk matters for a child's goal
- Short-term goals (under 3–5 years): If the family may need access or wants a chance-based gift, Premium Bonds can be appropriate.
- Medium/long-term goals (education, 18th birthday): Predictability of interest in a Cash JISA usually trumps chance-based returns when aiming for a target sum.
Access, gifting rules and Junior ISA contribution limits
Understanding who controls the account and how transfers/gifts work is essential when giving money to a child.
Who can open and control accounts
- Cash JISA: Must be opened by a parent or guardian on behalf of a child under 16 (providers’ rules vary). The child becomes account holder; the account is locked until the child turns 18, after which control passes to them.
- Premium Bonds: Can be purchased in a child's name by parents, grandparents or friends. Bonds can be cashed in earlier than 18 if the registered contact authorises redemption and collection of proceeds.
Junior ISA annual limit and gifting into JISAs
- The Junior ISA allowance is set by government (current at time of writing: check GOV.UK for updates). Contributions from multiple people count towards the single annual limit for each child.
- If gifting more than small amounts, confirm whether the child already has a JISA and remaining allowance. Gifts that exceed the annual limit cannot be accepted into a JISA.
Practical gifting rules
- Premium Bond gift: Buy and register the Bonds in the child’s name; keep proof of purchase and NHS number for registration if required. Bonds can usually be cashed or transferred later.
- JISA gift: Pay the gift to the JISA provider, ensuring the total JISA contributions for the tax year do not exceed the allowance.
When Premium Bonds suit short-term savings for children
Premium Bonds can be appropriate in particular situations:
- Desire for flexible access to capital with no penalty for withdrawal.
- Small, infrequent gifts where the giver hopes for a big prize but accepts the chance of no return.
- Situations where liquidity is important (e.g., parents may want funds accessible before the child is 18).
Examples where Premium Bonds work well
- A grandparent gives £200 as a birthday gift and values the chance of a prize plus the ability to cash in quickly.
- A parent wants an on-call fund for unexpected school costs and prefers the additional possibility of a prize rather than a small fixed interest.
Long-term growth, tax planning and inheritance considerations
For long-term savings goals, Cash JISAs typically provide clearer tax planning and compounding benefits.
Benefits of cash JISAs for long-term goals
- Predictable compounding makes it easier to forecast a future balance for university or other costs.
- Money inside a JISA remains tax-free and does not form part of the child’s income for tax reporting.
Inheritance and ownership at 18
- At 18, the child gains control of their JISA or Premium Bonds. That change of control has implications: the child can withdraw, invest, or keep the deals.
- Gifts to children become their asset; they may affect means-tested benefits only if relevant at the time (rare for most families but check with a benefits adviser if necessary).
How to gift Premium Bonds to a child: step-by-step process
Step 1: decide who registers the bonds
Decide whether to register the Bonds directly in the child’s name or keep them in a trust/guardian arrangement if available.
Step 2: gather ID and details
NS&I requires name, date of birth, and often the child’s contact details. Have proof of identity and a National Insurance number if requested at a later date.
Step 3: purchase and register online or by post
Buy via NS&I online or by post. For a gift, specify the child as the registered holder. Keep the purchase receipt.
Step 4: store confirmation and monitor prizes
Keep all documentation and check monthly prize draw results. Prizes are paid directly to the registered holder's bank account if linked, or can be paid out on redemption.
Step 5: redeem if needed
If funds are required before the child turns 18, the registered contact can cash the Bonds following NS&I procedures.
(Full procedural details and forms are at NS&I.)
Practical comparison table: Premium Bonds vs cash JISAs
| Feature |
Premium Bonds (child) |
Cash JISA |
| Capital security |
Capital guaranteed by NS&I |
Capital protected (subject to provider solvency) |
| Returns |
Prize-based, variable; no guaranteed interest |
Quoted interest rate (AER), predictable compounding |
| Tax |
Prizes tax-free |
Interest tax-free |
| Accessibility |
Can be cashed in before 18 |
Locked until child turns 18 |
| Best for |
Short-term gifts, small amounts, chance-based upside |
Planned medium/long-term saving with predictable growth |
Premium Bonds vs cash JISAs — quick decision flow
🎯 **Goal first** → ⏳ **Timeline** → 💡 **Product**
**Step 1** → Does the child need access before 18? ✅ yes → consider Premium Bonds.
**Step 2** → Is predictable growth important? ✅ yes → choose cash JISA.
**Step 3** → Is the gift small and celebratory? 🎉 Premium Bonds fit. For larger, planned gifts use a JISA.
Quick rule: Premium Bonds = flexible & chance · Cash JISA = locked & predictable
Advantages, risks and common mistakes
✅ Benefits / when to apply
- Cash JISA: Predictable returns for education or long-term saving; easy to forecast.
- Premium Bonds: Immediate accessibility; tax-free prizes; appealing for small celebratory gifts.
- Both: Tax-efficient for children; safe vehicles when used correctly.
⚠️ Mistakes to avoid / risks
- Over-relying on Premium Bonds for long-term goals — the expected value may be insufficient for targets requiring certainty.
- Ignoring JISA allowance — exceeding the annual limit invalidates contributions.
- Assuming immediate control — JISAs are locked until 18; gifts become the child’s property at 18.
FAQ: common questions answered
Can someone else open a cash JISA for my child?
Yes. A parent or guardian can open a JISA on behalf of a child; others can pay into the account provided contributions do not exceed the annual allowance.
Are Premium Bond prizes taxable for children?
No. NS&I Premium Bond prizes are tax-free and do not need to be declared by the child as income.
Can Premium Bonds be transferred into a JISA?
Premium Bonds themselves cannot be transferred into a JISA; the cash proceeds from redeeming the Bonds can be contributed to a JISA subject to the child’s remaining annual allowance.
What happens to a JISA at age 18?
At 18 the child gains full control and can withdraw funds, move them to another account, or convert to an adult ISA.
How often are Premium Bond draws held and how are odds calculated?
Draws are monthly. Odds depend on the number of £1 bonds held and the current NS&I prize fund rate. See NS&I prize odds for current figures.
Does cash in a JISA affect benefits?
Generally, money in a child’s JISA is their asset and does not affect parental benefits. For unusual circumstances involving means-tested benefits, seek specialist advice.
Is there a minimum or maximum for Premium Bonds gifts?
NS&I sets purchase minimums and limits per holder. Check current limits on the NS&I site before gifting.
Competitive considerations and gaps to check before deciding
- Compare current cash JISA rates across providers — rates change frequently. Use price comparison sites and check the provider’s terms.
- Check NS&I’s current prize fund rate and odds at the time of gifting — these figures affect expected long-term outcomes.
- Consider splitting gifts: part into a cash JISA for steady growth and part into Premium Bonds for flexibility and chance.
Next steps
Next steps
- Check the child’s current JISA balance and remaining annual allowance for the tax year.
- If planning a long-term gift, obtain and compare current cash JISA rates from at least three providers and consider locking in a higher rate if available.
- For a short-term, accessible gift, purchase Premium Bonds in the child’s name via NS&I and keep proof of registration.