Premium Bonds are unlikely to provide much "fun". A few years ago, as an experiment, I purchased the maximum Bonds possible for each of my family of 4 and monitored the results over 5 years. Even taking into account that 'wins' are tax-free, the returns were less than if the equivalent sums had been placed on high-interest deposit accounts. It was also noticeable that the frequency of wins tailed off over time. Contributors to a financial bulletin board I follow carried out a similar exercise with the same result, across a large number of people. Of course, occasionally a Granny in Hemel Hemstead will win £1m from £5 'invested'...................(and that's why the returns are so rotten for the rest of us!)
Pensions have received a bad Press recently and, I know from previous discussions, are not particularly popular with Citywire readers. However, the powers of compound interest make a hugely attractive case when considering investing for a child at birth. The key point to remember is that it is the first £'s put in that make the greatest returns, so even if the beneficiary doesn't continue to make contributions later on, they will still reap the most significant rewards. A single payment of £2,880 invested into a Stakeholder Pension at birth and grossed up by the Govt to £3,600 should, at a modest return of, say, 5% per annum, turn into around £70,000 by the time the beneficiary is 60. Do that for few years and there's the basis for a reasonable pension pot. Yes, you could do the same in an ISA, but you'd lose the effect of the tax relief 'top-up' and, I suspect, the temptation to dip in may be too great for a youngster. For all the flak about pensions, having one has to be better than not having one, bearing in mind that it is now the norm to live to the mid-80's and beyond.
