Should I cash in my baby bonds?

CBmum

Hi there

We have two baby bonds taken out 15 years ago for our twins, which mature in 3 years. They were with Children's Mutual's Tunbridge Wells with-profits fund, now transferred to Foresters.

The figures below are for each individually, and they are identical (the bonds, not the twins...).

Having paid in £4,500 to date, they now have a cash in value of £5,000 and their "guaranteed benefits" at maturity (by which time we will have paid a further £900 each) are only £5,100 (this being the sum insured plus the paltry bonuses that were added in early years before they were stopped).

I've called the provider to see if I could get an explanation of what's likely to happen over the next 3 years, to see if we should hang on in there or cut & run. The explanation wasn't clear to me, but they did say that the "final bonus" being added to similar policies maturing now is currently around 280% of the annual bonuses previously added. With the sum assured being £4,900, bonuses previously added (which stopped in 2010) only £250, the final bonus would be around £700, giving a total payout of around £5,850, a pretty poor return for a regular investment of £5,400 paid in over 18 years.

Alternatively, if they are paying out 280% in final bonuses now, on policies that presumably had three years more annual bonuses paid before they stopped, perhaps the final bonus will go up between now and then? They did mention something about the previous year's final bonus being more like 240% of the annual bonuses paid.

I'm kicking myself for not paying attention to this earlier but, now that we have, wondering whether we should cash these in now, rather than throw more money in. Even allowing for taxation on the parent, I figure we could get a better rate of return for the remaining 3 years in an ordinary savings account.

All advice welcome, please!

Reaper

I don't think there is an easy answer as it involves predicting the terminal bonus. I'm not keen on with profits policies however since you are now so close to the end I would be tempted to keep going.

Some with profits policies allow you to make it "paid-up" which means you keep it running but stop paying in any more in. I don't know but suspect your Baby Bond does not allow this but there is no harm in asking.

Alexland

Yes on the information you have there is no clear course of action. You are now very close to the final bonus so it would seem a shame to cash it in but then it could be better or worse than expectations. I have a strong dislike for these kind of policies.