Child Bonds: Frequently Asked Questions
Q: Who can invest in Scottish Friendly child bonds?
A: Anyone who has a special child in their life can invest including parents, grandparents, uncles, aunties, Godparents and even friends of the family.
Q: How much money can I invest in a child bond?
A: The maximum amounts that you can invest are: £25 per month, £270 per year or £2,340 for 10 years. Remember; these amounts must include all other investments made for the child into other friendly societies so check with other family members before you invest.
Q: Is there a minimum amount that I have to invest?
A: Yes, there is. The minimum amounts are: £10 per month, £120 per year or £1,040 per 10 years.
Q: Over what time period do I need to invest?
A: Anywhere from 10 to 20 years. The child bond matures at 10 years, but if the child has not yet reached the age of maturity at 10 years the investment can be continued until the child reaches 21.
Q: What are the tax benefits?
A: Most policies are tax-free, meaning that they are free of income tax and capital gains tax. There are a few exceptions, however. If the policy is cashed in early or if certain lump sum payments are made, the policy may be taxed.
Q: Are there penalties for early withdrawal?
A: There are no penalties, but the policy may be taxed. Also, if the policy is cashed in very early it may not be worth as much as the investment made. This means that you could actually get back less money than you paid in.
Q: What can the child do with the money?
A: The beneficiary can use the money for education expenses, a down payment on a home, business start up or however else they see fit. They can even invest it into another portfolio and keep on planning for financial growth.
Q: What if I cannot continue to pay the child bond premiums?
A: The policy will lapse; however, you will be able to pick up the policy by resuming payments within a 12 month period. If you do not resume payments the child bond policy will become void. If this occurs during the first two years, you will not receive any money that you have paid in. If it happens after two years, the child may be entitled to the surrender value of the policy.
Q: What happens to the policy if I die?
A: If you die, someone else can take over the obligation of the child bond. They can continue making premium payments just as you did without interruption to the benefits.
Q: Which is better, lump sum or small payments?
A: There are benefits of each. Small monthly or annual payments into child bonds have greater tax benefits. If you make a lump sum payment (equal to 10 years), the money is held in an account and distributed to the policy in small payments. Making a lump sum payment does not increase the return of your investment.