Are saving choices for children confusing or uninspiring? Many parents and educators feel unsure how to explain the practical differences between Junior ISAs and Premium Bonds—or how to turn those products into active learning tools for children.
Prepare to cut through the jargon and start teaching with clarity: this toolkit compares Junior ISAs and Premium Bonds for child savings, explains how each product works, outlines tax and ownership rules in England, and provides ready-to-use classroom and at-home activities to teach children ages 3–17. Practical examples, simple maths, and classroom-ready tasks are included so lessons become memorable rather than theoretical.
Key takeaways on teaching kids finance: Junior ISA vs Premium Bonds
- Junior ISA = tax-free investment wrapper for long-term growth. Useful for teaching compound interest, risk vs reward and long-term planning.
- Premium Bonds = prize-based savings with no guaranteed interest. Useful for teaching probability, expected value and the psychology of chance.
- Tax and access differ, both are tax-efficient today, but ownership and access at 18 matter. Explain legal ownership and transfer rules clearly to avoid surprise at maturity.
- Use both as complementary teaching tools. JISAs to show predictable growth scenarios; Premium Bonds for probability lessons and motivation via prize draws.
- Start small, make it visible, and build habit-led exercises. Short activities and simulations (4–8 weeks) teach saving behaviours faster than lectures.
What a junior ISA is and how it works
A Junior Individual Savings Account (Junior ISA or JISA) is a tax-efficient savings wrapper for under-18s. Money held in a JISA grows free of UK Income Tax and Capital Gains Tax while invested.
Context and mechanics: contributions can be made by parents, guardians or others (subject to the annual limit). For 2025/26 the annual limit is indicative and subject to change; check the current allowance on GOV.UK. There are two main types: cash Junior ISAs and stocks & shares Junior ISAs. The former behaves like a deposit account; the latter holds investments that can rise or fall in value.
Implications for teaching:
- Use a cash JISA to explain simple interest and savings growth in a way children understand: deposits, balances and interest paid annually.
- Use a stocks & shares JISA to introduce compound returns, volatility and the concept of long-term time horizons (e.g. saving for university at 18).
- Show how contributions add up across years: a small, regular amount compounds into a meaningful pot by age 18.
Practical classroom example: a weekly allowance of £5 paid into a cash JISA at 2% effective annual rate produces X by age 18, calculate and compare with a stocks & shares ISA scenario.
Common mistakes to highlight:
- Treating a stocks & shares JISA as a guaranteed return vehicle, emphasise the possibility of loss.
- Ignoring fees in an investment JISA, platform/ fund charges reduce net returns and should be modelled.
How premium bonds (NS&I) differ: prize draw versus interest
Premium Bonds, issued by National Savings & Investments (NS&I), do not pay interest. Instead, each £1 bond is assigned a unique number and entered into monthly prize draws with tax-free prizes (including a top prize). The value held is always your original capital, Premium Bonds aim to preserve capital rather than grow it predictably.
Key teaching points:
- Explain the difference between guaranteed interest and chance-based winnings. Premium Bonds are a savings product with lottery-like rewards but capital is secure.
- Use probability to show expected value: average return equals the prize fund rate; actual outcomes vary widely and many savers receive nothing.
Useful links: NS&I explanations and odds are available at NS&I Premium Bonds and NS&I publishes current prize fund rates and odds each month.
Mini numerical example for class: if the published prize fund annual rate is 1.4% (indicative), the expected return per £100 is approximately £1.40, but most bond-holders will either win zero or a prize much larger than £1.40. This is a great prompt for activities on distributions and chance.
Tax implications: Junior ISAs versus Premium Bonds in England
Direct answer: both products are broadly tax-efficient for children today, but the mechanisms differ and future tax consequences can vary.
Details and context:
- Junior ISAs: growth in a JISA is free from Income Tax and Capital Gains Tax while held. The child becomes the legal owner and the tax benefits remain under current rules. See GOV.UK for official guidance.
- Premium Bonds: prizes are tax-free, and there is no tax on capital. Because prizes are counted as winnings and not interest, they are not liable for Income Tax in the UK.
Teaching implications:
- Use a simple comparison table to explain that both are tax-efficient now, but the way earnings are delivered (interest vs prizes) changes how returns look on paper.
- Note: rules can change; advise checking HM Revenue & Customs or GOV.UK for changes. Link: HMRC.
Risk, returns and expected growth for child savings
Short answer: JISAs expose children to market risk (stocks & shares) or low interest rate risk (cash JISAs). Premium Bonds offer capital preservation with variable prize-based returns and no guaranteed growth.
Deeper context and examples:
- Cash Junior ISA: low volatility, low returns. Real-world risk = inflation eroding purchasing power. Use simple inflation examples to show purchasing power loss.
- Stocks & shares Junior ISA: higher expected return historically but with short-term dips. Use time-horizon graphs to explain why long horizons (10+ years) reduce the chance of negative real returns.
- Premium Bonds: principal is safe, but expected return equals the published prize fund rate; variability is high, most months a specific holder wins nothing.
Table: side-by-side comparison (alternating rows) for quick classroom reference
| Feature |
Junior ISA (cash/stocks) |
Premium Bonds (NS&I) |
| Primary mechanism |
Interest (cash) or investment returns (stocks) |
Monthly prize draws, no interest |
| Capital protection |
Cash JISA protected; stocks may fall |
Capital preserved (deposit-like) |
| Tax |
Tax-free within the JISA |
Prizes tax-free |
| Access |
Child gains control at 18 |
Child gains control at 18 |
| Best for teaching |
Long-term investing concepts, compound returns |
Probability, expected value and behavioural lessons |
Transferring, withdrawing and ownership rules explained simply
Straight answer: the child legally owns money in both products; the adult sets up and controls contributions until the child turns 18, at which point control passes to the child.
Practical points to communicate clearly to families:
- Opening and contribution: JISAs and Premium Bonds for youngsters must be opened by a parent or guardian; third parties can contribute to JISAs. For Premium Bonds, an adult purchases bonds in the child's name via NS&I.
- Transfers: JISA providers accept transfers between JISAs; transferring out of a JISA to another provider is possible without losing tax status. NS&I Premium Bonds can be cashed out and the proceeds either held as cash or used to open another product.
- Withdrawal: Funds in a JISA cannot be withdrawn until the child reaches 18 (except in limited circumstances such as rare court orders). Premium Bonds can be redeemed earlier by the registered contact, but the registered child still cannot control them until 18.
Teaching tip: Create a timeline exercise showing ownership and control from 0 to 18 to avoid mistaken expectations.
Sources and official references: For legal transfer and withdrawal specifics consult GOV.UK and NS&I.
Short answer: use simple, repeatable activities that convert product mechanics into hands-on learning.
Classroom and home-ready activities (age-banded):
Ages 3–7 (concrete basics)
- Money jar vs bank balance: give physical coins for a week and move them into a labelled JISA pot. Use stickers for milestones.
- Simple story: "Sam's piggy bank grows", show weekly deposits and one annual interest payment for a cash JISA.
Ages 8–12 (basic arithmetic and probability)
- Prize draw simulation: give students mock bonds (numbered tickets) and run a classroom draw. Count winners, compare to expected wins and discuss disappointment vs excitement.
- Compound interest worksheet: compare £10 weekly into a cash JISA at 1% vs a stocks & shares scenario with simplified returns.
Ages 13–17 (critical thinking and planning)
- Scenario planning: allocate a hypothetical £2,000 between a stocks & shares JISA and Premium Bonds; model outcomes for university at 18 using conservative, moderate and optimistic return assumptions.
- Fee analysis: show how platform or fund fees reduce net returns over 5–10 years.
Tools and resources to build:
- A simple spreadsheet simulator for Junior ISA vs Premium Bonds showing annual balances, expected returns and probability of winning a prize. This keeps lessons interactive and measurable.
- A printable checklist for parents: how to open a JISA, buy Premium Bonds, documentation needed, and what to discuss with the child.
Classroom-ready mini-project (4–8 weeks):
- Week 1: Open a mock JISA and buy mock Premium Bonds (class tokens).
- Weeks 2–7: Track contributions and run monthly simulated draws.
- Week 8: Compare cumulative balances and discuss emotions, expectations and outcomes.
Visual process: teaching flow for a classroom module
Step 1 🎯 Define the goal (eg. save for a laptop at 16) → Step 2 💷 Choose product(s) to model (JISA, Premium Bonds) → Step 3 📊 Run a simulated schedule (weekly deposits + draws) → ✅ Step 4 Discuss outcomes and next steps
Comparative quick guide: JISA vs Premium Bonds
Junior ISA
- 📈 Predictable growth (cash) or variable (stocks)
- 🔒 Child owns at 18
- 📚 Great for long-term lessons
Premium Bonds
- 🎲 Prize draws monthly
- 💷 Capital preserved
- 🧠 Great for teaching probability
When these methods excel (high-impact scenarios)
- Teaching long-term planning: JISAs show compounding and goal-setting clearly.
- Teaching probability and patience: Premium Bonds help children understand chance and how most savers get no short-term reward.
- Working with different learning styles: the two products appeal to both logical planners and reward-driven learners.
Red flags to watch (what can go wrong)
- Overpromising returns on stocks & shares JISAs, emphasise uncertainty and fees.
- Treating Premium Bonds as a guaranteed way to ‘win’ money, children can form gambling-like expectations.
- Failing to explain ownership at 18, lead to misunderstandings when the child gains control.
How does a Junior ISA help teach compound interest?
A Junior ISA illustrates compound interest because interest or investment returns are reinvested and grow over time. Use yearly balance tables and simple percentage examples to show how small regular deposits accumulate.
Why use Premium Bonds to explain probability to children?
Premium Bonds provide a real example of chance: monthly draws with published odds let children compare expected value with actual outcomes. Running simulated draws turns abstract probability into an emotional learning moment.
What happens to accounts when the child turns 18?
Control passes to the child at 18; a Junior ISA or Premium Bonds held in their name become theirs to manage. Explain practical steps and responsibilities before this handover to prepare them.
Which option is better for short-term goals like a bike in two years?
A cash Junior ISA or easy-access savings account is typically more suitable for short-term goals due to more predictable returns; Premium Bonds are less reliable for guaranteed short-term outcomes. This depends on appetite for chance and the need for predictable funds.
How can schools legally use these products in lessons?
Schools can run simulations using mock accounts and classroom tokens; real account opening requires parent/guardian consent and identity checks. For factual and regulatory information consult FCA guidance on financial promotions and suitability.
What if a child receives a large windfall from Premium Bonds?
A large prize is tax-free but may affect means-tested benefits for the family or eligibility for certain grants; families should consider savings plans and, if needed, seek regulated financial advice for significant sums.
Closing summary and roadmap
Teaching children about savings using both Junior ISAs and Premium Bonds builds complementary skills: planning and compound-growth thinking from JISAs; probability, patience and behavioural awareness from Premium Bonds. Using hands-on activities and simple simulations makes lessons memorable and directly applicable to family saving decisions.
First practical steps to start teaching today
- Open a mock classroom or home spreadsheet and record one weekly deposit into a JISA column and one simulated Premium Bonds column. (5–10 minutes)
- Run a monthly draw with numbered tokens to simulate Premium Bonds and record outcomes. Discuss expected value vs reality. (10 minutes)
- Bookmark official guidance pages (GOV.UK for JISAs and NS&I for Premium Bonds) and review them with older children to explain legal ownership at 18. (5–10 minutes)
