Premium Bonds for Kids: Pros and Cons

Teens 13–17 · Explainer · Updated October 1, 2026 · LearnLife Editorial

What Are Premium Bonds for Kids, Simply Explained?

Premium bonds are government-backed savings products where you buy bonds that don’t pay regular interest but enter you into monthly prize draws. For kids, this means that instead of earning a set amount of interest, their bond numbers have chances to win cash prizes ranging from small sums to large jackpots. The money you put in stays safe and can be withdrawn at any time.

These bonds are a popular way to encourage saving in a fun, game-like way. The government guarantees you won’t lose your initial investment, so it’s safer than investing in stocks or mutual funds. Unlike regular savings accounts, premium bonds don’t earn interest — your potential earnings come only from prize wins.

For example, if you buy $50 worth of premium bonds for a kid, that’s 50 chances to win prizes each month. Some months might bring wins; others might bring none. Over time, this can make saving feel exciting, especially for young people who want to learn about money management.

How Exactly Do Premium Bonds Work? A Clear Example

When you buy premium bonds for kids, each $1 bond is a ticket in a monthly prize draw. Imagine a 15-year-old has $100 invested in premium bonds. That’s 100 individual bond numbers entered into the monthly draw. The draw awards prizes ranging from $25 up to a top jackpot, which varies depending on the bond program.

Here’s how it works step-by-step:

1. Buy $100 worth of premium bonds for the child.
2. The bonds are registered in their name, so any prize money is theirs.
3. Every month, the bond numbers are entered into a random prize draw.
4. If any of the child’s numbers win, the prize money is paid into their account, often tax-free.
5. The child can keep the bonds to continue entering draws or cash them out anytime.

For example, say the 15-year-old wins a $50 prize one month. That $50 is added to their bond account and can be withdrawn or left invested. There’s no guarantee of winning, but the potential prizes make saving more exciting than simply earning interest.

Why Do Premium Bonds Matter for Teens and Young Savers?

Premium bonds teach important lessons about money, saving, and risk without the complexities of investing. For teens just starting to save, premium bonds offer a secure way to set money aside while introducing the concept of earning returns—albeit through chance.

This approach can be especially motivating for young savers who might find watching interest rates confusing or boring. Instead, premium bonds turn saving into a game, with the thrill of potentially winning prizes. This can encourage regular saving habits, as teens see the value of patience and persistence.

Moreover, premium bonds are flexible. Teens can access their money if needed, unlike some savings plans with penalties for early withdrawal. This flexibility is useful for emergencies or sudden expenses, making premium bonds practical as well as educational.

Overall, premium bonds help build financial confidence and interest in managing money, which is a crucial skill as teens approach adulthood.

What Confusions or Mistakes Should Teens Avoid About Premium Bonds?

One common confusion is mixing premium bonds with traditional savings bonds or other investments. Premium bonds don’t pay fixed interest or dividends. Instead, they offer prize draws, so you might not earn anything if you’re unlucky. This is different from savings bonds that earn steady interest you can predict.

Another mistake is expecting premium bonds to grow your money reliably. Because winnings are random, premium bonds are not guaranteed to beat inflation or offer the same growth as some investments. It’s important to think of them as a fun way to save, not a primary investment plan.

People also sometimes confuse premium bonds with stocks, mutual funds, or certificates of deposit (CDs). Premium bonds are safer since the government backs them, but they don’t generate earnings like stocks or mutual funds. CDs pay fixed interest but require locking in money for a certain period, unlike premium bonds.

Knowing these differences helps set realistic expectations about how premium bonds fit into your overall money plan.

How Can Parents and Teens Buy Premium Bonds Together?

Typically, parents or guardians purchase premium bonds on behalf of children under 16 or 18, depending on the program’s rules. Some programs allow teens aged 16 or older to buy bonds themselves. To buy:

1. Visit the official premium bond issuer’s website or a participating bank.
2. Open an account in the child’s name, with a parent or guardian as a co-owner if needed.
3. Choose how much money to invest, usually in increments of $25 or $50.
4. Register the bonds to get bond numbers, which enter prize draws.
5. Keep track of account details for checking winnings.

For example, if a parent buys $200 worth of premium bonds for a 13-year-old, the child will have 200 bond numbers entered into each monthly prize draw. The parent and child can check for prizes online or receive notifications.

It’s important to keep the bond number safe and check regularly for winnings. Also, parents should explain how the bonds work so teens understand the balance of risk and reward.

For detailed instructions, see guides on how to buy bonds for a child and how to buy premium bonds for teens.

What Are the Main Pros and Cons of Premium Bonds for Kids and Teens?

Here’s a detailed look at the benefits and drawbacks:

Premium bonds suit teens who want to learn saving with an element of fun and chance. However, if you want steady, guaranteed growth, other savings or investment options might be better.

What Are the Next Steps if You Want to Try Premium Bonds for Kids?

If premium bonds sound interesting, start by:

• Researching the official premium bond program in your country to understand rules and age limits.
• Discussing with your parents or guardians if they can purchase bonds for you or help you open an account.
• Deciding how much you want to save in premium bonds, balancing it with other savings or investments.
• Learning how to check for prizes and manage the bond account online.
• Comparing premium bonds with traditional savings accounts and other bonds to find what fits your goals.

Remember, premium bonds are just one way to save money. Combining them with other saving and investing strategies helps build a well-rounded financial future.

For more beginner-friendly ideas, see the guides on bonds for kids and how to buy premium bonds for a 16-year-old.

Frequently asked questions

Can teens buy premium bonds on their own?

Teens aged 16 or 17 can often buy premium bonds themselves, but younger children need a parent or guardian to make the purchase. Check your country’s rules to see the age limits and account requirements.

How do I know if I’ve won a prize with premium bonds?

Most programs notify winners by email or post. You can also log into your premium bond account online to check for prizes after each monthly draw.

Are premium bond prizes taxable income?

Prize money from premium bonds is usually tax-free. However, tax rules vary, so it’s a good idea to check local regulations or talk with a tax advisor if you’re unsure.

Can I cash out premium bonds whenever I want?

Yes, premium bonds can be cashed in at any time, and you get back the full amount you invested. After cashing out, you no longer enter prize draws.

How do premium bonds compare with regular savings accounts for kids?

Savings accounts pay steady interest but usually at low rates. Premium bonds don’t pay interest but offer chances to win prizes, making saving more exciting but less predictable.