National Savings do some good investment products and some not so good, this review concentrates on CHILDRENS BONUS BONDS.
Firstly I have to say, please do NOT get these confused with the Governments relatively new Child Trust Fund (sometimes known as Baby Bonds) or Premium Bonds. They are not connected in any way.
Childrens Bonus Bonds are not advertised and therefore sometimes forgotton about as an 'alternative' gift or to help you save for your childs future.
How many times have we all spent an amount of money on a present for your child/neice/nephew or friends children only for it to be outgrown in a few months? .
Or perhaps Nanny & Grandad want to invest some money for their grandchildren?
During the first few years of my sons life, I was given a fiver here and a fiver there from various relations to 'get him some sweets' or buy him something nice! Well I don't know about you but babies/toddlers and young kids have nearly everything these days and I didn't want to spend the fiver just for the sake of it.
I wanted an alternative to a Building Society account as the account would have to be in my name as 'trustee', therefore attracting tax. With National savings, the bonds are in his name, with myself as the guardian and I can automatically re-invest for another 5 years.
Whilst there are other investments out there with maybe a higher return, Childrens Bonus Bonds can be bought by the relative/friend as well rather than giving the actual money to the parents to invest on their behalf.(so if you were thinking of spending it yourself - hard luck!)
HOW THEY WORK
National Savings products can be purchased through any post office.
The bonds can be bought in units of £25.00 up to a maximum of £1,000 in each Issue and are invested for a 5 year period. Please note however that new Issues come out regularly (usually yearly) and therefore this maximum level doesn't really cause any problems. Well, not for me anyway!
The application form from the P.O. is very straightforward and basically contains four sections.
You are required to enter the childs details , name, residential address and date of birth etc.
Name and address of parent/guardians. This is who will be the 'Resonsible Persons' for looking after the Bond(s) until maturity.
Your name and adress, and your relationship to the child.So if you are a nanny/auntie etc, you would enter this here, if not then leave blank.
How many units you wish to purchase, method of payment and a signature and date.
The P.O. will check the form and issue you with a receipt but the actual Bond is issued by National Savings and is sent out within 28days.
The Bonds themselves are very easy to read and contain the following info :
Your customer/holder Number which is unique to yourselves and can be quoted on any further purchases/queries.
The Bond Number
Amount of Units Purchased e.g. 1
The Anniversary date and Value of Bond at that date (inc interest and bonus) FOR EXAMPLE ONLY
28th Dec 05 Value £25.00
28th Dec 06 £29.43
28th Dec 07 £31.96
28th Dec 08 £33.78
28th Dec 09 £36.87
FIVE YEAR ADDED BONUS £4.21
If you leave the Bond for the full five years they add on a bonus.
The Rate of Interest is whatever the current savings rate is at the time of Purchase, the Post office can advise you) and this remains unchanged for the five years.
A nice little touch at the bottom says 'A Gift from Mrs Jo Bloggs' (which is why they ask for your details) so one day the child will know what Nanny/Auntie did with her money!! However, should you not wish for your name to appear, then it can be left blank or you can just put the parents name.
THE 'NITTY GRITTY' BIT NOW !
Bonds can be purchased for anyone under the age of 16.
They are held for 5 years at a time and towards the end of the five years National Savings automatically write to you detailing the Value of the Bond over the coming 5 years and the Rate of Interest. Therefore its wise to notify them of your new address should you move. Should you wish to re-invest, do nothing. If you wish to cash in the Bond then the reverse of their letter is printed with a Request for Payment form.
Rates and Bonuses are guaranteed.
The bonds can be re-invested earning interest and bonuses until the child reaches 21. No interest is earned on the Bonds once the child reaches his/her 21st birthday.
Once a Bond holder reaches 16 years of age only they can apply for repayment.
Bonds can be cashed in before the end of the five year period with interest but if it is cashed before the first anniversary then no interest is earned.
PLEASE advise National Savings of any change of address so you always receive the re-investment notification.
I think that £25.00 is not too large a sum for someone as a gift. Sometimes I have put the money away until I have had £100 and then bought 4 units. I like the flexibility of the amount and the fact that that you can buy one each birthday/Christmas if you wanted to.
My son has a fair few of these now and no doubt will continue to get a few more over the next couple of years. He knows he has these Bonds but being an undecided teenager is not too sure if he will use them towards driving lessons, a car, or towards his Uni fees!
Besides myself, Bonds have been purchased for him by his Grandma & Grandad who live in France. They can just send off the application with their cheque (in GBP). It saves having to post a large parcel or any worrying about whether the jumper/jeans will fit etc and at the same time know the money from the Bond will be more useful to him.
I prefer to buy a Bond than put the money into the Building Society as the interest rate will remain the same throughout the five years. Also there is no tax and as these Bonds are in the childs name, its saves any trouble from the Inland Revenue thinking the interest belongs to you just because you happen to be a named person on a Building Society?Bank Account.
I think its great that friends/family can purchase these direct. In this day when kids have everything it makes a change to know the money you spent wil lbe put to good use ...hopefully and eventually!
I have been dealing with National Savings for 13 years and have never had to contact them. All the notification letters have been sent without fail.
Rates obviously vary so please check first.
I hope this simple explanation of the Bonds helps but for further and more detailed info, Application forms and explantory notes you can ask at any Post Office or contact National savings direct at :
National Savings & Investments
Enquiries on 0845 964 5000.
Thanks for reading!
National Savings & Investment Guaranteed Equity Bond Play the stock market without risking a penny exclaims the brochure. This product gives you the opportunity to invest as little as £2,000, and benefit in the returns the stock market makes over the next 5 years, without risking a penny of your capital! It sounds too good to be true. So, how good is it really? What Can I Invest? £2,000 is the minimum investment. £1m is the maximum, although this is doubled for joint holdings. Strangely, neither Mrs Opinions4u or myself is going to be troubled by the upper limit. Can I Access My Money? No. This is a 5 year investment maturing in June 2008. The only way you can get to the money within that term is to die! You cannot add to a Bond during its term, although you are allowed to hold up to 5. Is It Tax Efficient? No. All gains made are subject to UK income tax. In other words, the gains made will all be liable for tax in the 2008/9 tax year. This can have its advantages. If you think that you will pay a lower rate of income tax in 2008/9 than you do now (eg retirement, planned career break or family etc) this can be an excellent way of deferring the tax bill. There will, however, be 5 Budget?s between now and then for Chancellors to change tax rules and blast any prudent planning on your part to smithereens! Interestingly, the interest will be paid gross (without tax deducted) and you will need to declare the income on your tax return. The gains are treated purely as income and are not subject to Capital Gains Tax. Gains made from "real" dealing in stocks and shares are subject to Capital Gains Tax. It may well prove more tax efficicent to realise a capital gain in 2008/9 rather than get a big income tax bill. Can I Invest For My Children? Not directly. But you can take out a bond in trust for a minor. Seek professional advice rega
rding the taxation of income for a minor after checking out the rules in www.inlandrevenue.gov.uk. How Much Will It Make? First of all, the investment runs from 17th June 2003. If you invest prior to this date, you will earn 3.25% pa (gross taxable) on your money up to 16th June 2003. The full amount is then invested. Secondly, you cannot lose capital. While the return on this bond is linked directly to the FTSE100 index, if the FTSE should fall, you will get back your initial investment. Remember, if you had chosen to invest in a normal bank savings account, you would have earned interest. In this scenario, you have risked the interest you would have earned for no gain. Thirdly, if the FTSE100 rises between 0% and 65% during the 5 year period, you will get the FULL return of the FTSE100 without taking any of the risks associated with stock market investment. This is the best scenario, unless interest rates on bank savings account rocket over then next few years, which seems unlikely. The final scenario is that the FTSE100 grows by more than 65%. You will only get 65% of the growth in this situation. In other words, if the FTSE100 grows by a massive 200% (unlikely), you will only get 65%. There is also a proviso that averages the FTSE over the final 6 months. This means that if the FTSE enters the final 6 months of your investment on a high, and the crashes prior to maturity, you will still receive a return based on the average of the FTSE in the final 6 months. This could work against you if there is a big gain close to the end of the investment. Are There Any Charges? There are no management fees or charges. It should be pointed out that any dividends paid by the companies in the FTSE100 are NOT added to your investment or the value of the FTSE100. In other words, if you invested directly in to a Tracker Fund (a fund that buys shares directly in the FTSE100 on your behal
f), you would benefit from the dividends paid. Is It Right For Me? It could be. As a low risk investment that could defer tax liability to a time when you would pay less, it has a lot going for it. You should also consider the interest you would lose by not investing in a safe savings account, if the FTSE100 only grows a little or falls. And you should consider the dividends you would lose by not investing directly in the FTSE100. There is also the money you will not make if the FTSE100 grows by more than 65% over the 5 years! Using the following examples, I have made approximate calculations as to what you can typically expect to make in the following circumstances. These are pure conjecture as I do not own a crystal ball and you should not make an investment decision based on this information. Investment: £10,000 FTSE100 Growth: 8% per year High St Savings Rate: 3.5% per year Income Tax Rate: 20% FTSE100 Dividend Yield: 3% per year reinvested Tracker Fund Charge: 1% per year High Street Bank Account: £11,480 Guaranteed Equity Bond: £13,754 Tracker Fund: £15,751 (the £5,751 is subject to capital gains tax, although this sum is less than the tax allowance, so if this is your only gain in that tax year, no tax will be payable! If that does not make sense, I refer you to www.inlandrevenue.gov.uk again! Investments in an ISA wrapper legally avoid Capital Gains Tax anyway). Different returns can paint a different picture though ? FTSE100 Growth: 3% per year High St Savings Rate: 3.5% per year Income Tax Rate: 20% FTSE100 Dividend Yield: 3% per year reinvested Tracker Fund Charge: 1% High St Bank: £11,480 Guaranteed Equity Bond: £11,274 Tracker Fund: £12,427 And finally, let us repeat some of the happenings of the last few years and watch the FTSE100 slip! FT
SE100 Growth: -1.25% per year High St Savings Rate: 3.5% per year Income Tax Rate: 20% FTSE100 Dividend Yield: 3% per year reinvested Tracker Fund Charge: 1% per year High St Bank: £11,480 Guaranteed Equity Bond: £10,000 Tracker Fund: £10,017 Now, I apologise for totally confusing you there. The message I was trying to get across is that while on the face of it, this seems good, if you really want to play the stock market and are prepared to risk your capital, you have a much greater potential for gains than the Guaranteed Equity Bond. Equally, if you were considering investing in this because you do not like risk, it is possible to get back less than you would have done in a normal bank savings account! I will give you the chance to ponder your own attitudes to risk, your own tax situation and the other options available for your money. Ethical investors should remember that this is an investment in the UK Government!! If you still like this one, have a closer look at www.nsandi.com or ring 0500 500 000. There are also blue leaflets with a shell on the cover in most Post Offices.
I'm sorry, I can't stop laughing. I've just been reading the prospectus for the National Savings Ordinary Account and it's the funniest thing I've read in a while. Now I don't normally find such things funny, but this has to be read to be believed. I'd better give you a bit of background so that you can appreciate the joke as well, hadn't I? This is the basic Instant Access Account provided by the Post Office. You get a passbook. "Keep track of your savings with your passbook" says the prospectus, as though you would be incapable of doing so if you didn't have one. You need a minimum of £10 to open the account and it's available at more than 18000 Post Offices across the country. The first £70 of interest (or £140 if it's a joint account) is tax-free. You don't think it's funny? In fact you're actually quite interested? OK, let's have a closer look. There are two rates of interest. Currently the standard rate, for balances of £10 to £499 is 0.50%. For every £100 you have on deposit for a full year you will earn the princely sum of 50p in interest each year and you've got to wait until 31 December for the interest to be credited. Compare this with the Cahoot current account (including a cheque book) which is now paying 4% on a monthly basis on a balance of as little as £1. The higher rate of interest on the Ordinary Account, on balances of £500 to £10000 is currently 0.75% gross and even allowing for the fact that the first £70 (or £140 for a joint account) of interest is tax-free the rate of return is poor. In fact it would seem to be impossible to earn the full £70 of tax-free interest on the rates that are currently being paid. You're not impressed are you? I'm sorry, but there's worse to come. Each whole pound which is invested earns interest only for each whole calendar month for which it is invested. No interest is paid for
the month of deposit or withdrawal, so if you deposited the full £10,000 (please tell me you wouldn't do such a thing?) on the 2nd of one month and withdrew it on the last but one day of the following month you wouldn't earn a penny in interest. You'd have made a kind and generous interest-free loan to the Government. People will tell you that it's convenient. You can pop into the Post Office and get your money any time. No don't worry, I'm not going to rant on about the queues in the Post Office although it has to be said that when the village Post Office was raided the talk in the village was mainly of why the raiders had not been lynched for queue-jumping by all the people who'd been patiently waiting for their pensions. No, what I am going to mention is the fact that you've got to wait fourteen days for the cheque that you deposited to clear before you can draw on the funds. No Bank would make you wait that long. If the Post Office has to do this it can only be because it is badly organised. If you open your account with a cheque you are warned that you might have to wait for at least a fortnight to get your passbook. It could, though, be handy to have the immediate access to your money once the cheque has cleared. No, no, wait a moment. There are more hoops to jump through yet. You can withdraw £100 on demand at most Post Offices (this would suggest that there are exceptions to the rule but the nature of the exceptions is not specified). In this day and age £100 is not a lot of money particularly if you have to queue up to ask for a withdrawal slip and then queue again to get the money. If you want a larger amount you have to apply to National Savings in Glasgow and this, the prospectus says, can take a few days. You go to your Post Office and ask for a withdrawal form and pre-addressed envelope (not pre-paid then, one assumes?) You then send the completed form and passbook to Glasgow. They then s
end you either a crossed warrant (i.e. a cheque) or you can ask to collect the money in cash at a named Post Office. You think that's ridiculous, don't you? Well, how about this? After you've used your account at the same Post Office for six months you can qualify to become a Regular Customer. The capital letters come free, by the way. You have to ask for an application form at your Post Office and then you can withdraw up to £250 on demand but only at your nominated Post Office. The account is marketed as being suitable for children and I can see some advantage in a child of the age of seven or over being able to operate their own account, but I would doubt the wisdom of teaching any child that this was a sensible way to invest money. You've seen the joke haven't you? Well, I quite regularly see pensioners drawing their weekly money and they'll pass their savings book over with a £10 note tucked inside and say "...and I'll put that in for my holidays". That's when the joke tastes a little sour.