Can I maximize the Premium Bonuses for both of my children to increase my chances of winning?

I am lucky to be able to invest for my two children. I am also diligently saving for myself in investments and pensions.

I have a surplus of cash to go around and have already maxed out my personal premium bond allocation of £50,000, and I also have income bonds with NS&I.

If I were to invest £50,000 in premium bonds for my two children (who are currently under 4), what would happen to the prizes? Are they credited to my checking account?

Ideally, I wouldn’t want them to have access to the £50,000 when they turn 16 as they already have investments elsewhere. So, will I be free to collect the bonds when they reach 15 years?

In short, I would be using your Premium Bonus allocations to increase my chances of winning a big prize, but I want full control over the money.

Helen Kirrane from This is Money responds: Premium Bonds are loved by millions of savers for their monthly lottery-style draw where two savers win £1 million, as well as millions of other cash prizes ranging from £25 to £100,000.

Prizes won in the drawing are tax-free, unlike a standard savings account where you have to consider your personal savings allocation; That’s why many wealthier savers turn to premium bonds when they’ve used up their Isa and other tax-free allowances.

Your question presents a moral and ethical dilemma. When you start Premium Bonds for your child under 16, you act as the “responsible person” and can manage their bonuses online.

Technically, there is nothing stopping you from opening bonds for your children, maxing them out, and cashing them out before they turn 16, when they can take care of the bonds in their own right.

Some will consider this morally wrong or unethical, but it is not illegal, one expert tells me.

To get expert advice on your situation, we spoke to two financial planning experts, Aaron Banasikindependent financial advisor to Ascot Lloyds, and arturo child chartered financial planner at Flying Colors.

Aaron Banasik responds: It’s great that you are taking such a proactive approach to securing both your own and your children’s financial future.

Balancing your investments across various products, such as premium bonds and income bonds, while thinking long-term is truly admirable.

Your question about using your children’s Premium Bonds for the potential benefit of winning a big prize raises some important considerations.

When purchasing premium bonds for your children, the bonds must be in your name.

All prizes won are legally yours and winnings are paid into the bank account you designate when setting up the account.

Until your children turn 16, you can manage these bonuses on their behalf, including cashing them in at any time.

However, it is essential to note that any money placed in your Premium Bonds account is considered a gift to them. As a responsible adult, you must act in their best interest.

Ethically and morally, it would not be appropriate to use your children’s Premium Bonds as a means to increase their chances of winning or protect their funds, as the money ultimately belongs to them.

If maintaining full control over funds is important, there are other, more flexible options to explore.

Arthur Childs responds: It’s great to know that you have been actively saving for yourself and your children.

And even better to know that you have done your homework; You are already making the most of your personal Premium Bond allocation, in addition to also investing in income bonds.

It is now looking elsewhere to invest, particularly in premium bonds. Premium bonds are the UK’s largest savings product, with more than 24 million people currently saving more than £127 billion on them.

Premium bonuses are very flexible. You can put money in them and take it out whenever you want. The interest paid is tax-free and is decided by a monthly prize drawing.

When you win with Premium Bonuses, instead of taking the cash, you can also simply arrange for the money to be reinvested (unless you already have the maximum of £50,000).

Parents or guardians can hold them for a person under 16 years old and they expire once the holder turns 16 years old.

You say you are looking to keep the bonds in your child’s name to potentially win cash prizes. For that reason, you don’t want your children to have access to the money invested.

In this case, if you are responsible for the Premium Bonds, you could close the account before he turns 16 to access your money.

Although we would question the morality of this approach.

And when it comes to prize money, too, as the designated person in charge of the account, you are free to do whatever you want with the winnings.

But remember, prizes above the £50,000 investment limit must be accepted, while those below can be reinvested.

It’s also worth keeping in mind that the average yield on premium bonds tends to be lower than the inflation rate and, as a result, the purchasing power of your savings will be eroded over time.

Therefore, it is worth weighing up whether the average gains will be greater than the loss of purchasing power of your money.

Where else could you save?

Aaron Banasik responds: In your personal circumstances, it’s great that you are already using NS&I products such as premium bonds and income bonds.

However, have you also considered fully utilizing your Isa allowance? You may already be, but just as a reminder… for the current tax year, you can contribute up to £20,000 to an Isa, shielding the funds from income and capital gains tax.

An extra £20,000 can be added each tax year after April 6, meaning that within a 12-month period you could save £40,000 and within two years £80,000, using four annual allowances.

This approach allows you to retain full control over the funds while allocating them to your children’s future, ensuring flexibility in how and when the money is accessed.

If your goal is to save specifically for your children, you might consider contributing to a Junior Isa).

The annual allowance for a Junior Isa is £9,000 per child per tax year.

The funds within a Jisa grow tax-free, but belong to the child and become accessible to them when they turn 18.

Opening a pension for your children is another forward-thinking strategy. You can contribute up to £2,880 per child per year, and the government will top up this amount with tax relief up to a total of £3,600.

These funds remain locked in until at least age 57, making it a long-term option to ensure financial security in the future.

If maintaining control over the funds until a later date is a priority, you could explore creating a trust for your children.

A trust allows you to decide when and how your children pass on and access funds.

However, it is important to note that placing money in a trust is considered a gift, so you would give up personal ownership of the funds.

Setting up a trust involves legal paperwork and may have costs associated, but it offers peace of mind knowing that the money is safe and managed according to your wishes.

It is worth speaking to an independent financial advisor to explore the best type of trust for your situation and ensure it meets your family’s needs.