I have two children. Their grandparents are in their 70s, and want to open Premium Bonds for the grandchildren, putting in the full £50,000 for each.

They both already hold the maximum £50,000 themselves.

They would then like any prizes paid out to them directly, with the idea the money would then be the children's when they turn 18 (they are both under 5).

It sounds like a good plan, but are there any traps to be wary of?

Lee Boyce, editor of This is Money, says: Premium Bonds are incredibly popular way for us to save - not only as individuals, but also for younger relatives.

You can buy £25 worth a time, making them a great gift for children who probably don't need that extra plastic toy they'll get bored with quickly, or clothes they'll outgrow within months.

The odds of winning a big prize with the National Savings and Investments accounts are incredibly long - but even longer if you only hold small amounts, which it's likely many children do.

For instance, in the past 12 months, 14 of the 26 £1million prizes have been won by those who have the maximum balance allowed - £50,000, or just below.

This question pops up from time-to-time from readers and it's a bit of a murky area. I asked an expert for their view. 

Christie Tillett, independent financial adviser at The Private Office, says: How lovely that your parents want to make such generous gifts to your children. 

And Premium Bonds are certainly a safe pair of hands. But there are a few things that you and your parents should be aware of, as Premium Bonds may not work in exactly the way they hoped.

First, the Premium Bond accounts need to be managed by the parents or guardians of any child under the age of 16 - even if the grandparents are funding them. 

This means that you must be happy to give your details to NS&I and you'll need to supply the usual ID documents, along with those of your children.

This also means that any prizes their Premium Bonds win will be paid into your account – not your parents' or your children's.

One of the reasons that Premium Bonds are so popular is that the winnings are tax free, however, as the prizes will be paid into your current account rather than to your children directly, it's important to keep a note of any prizes won, as the children are the beneficial owners of any prize money arising from them. 

That said, if you leave this money in your bank account, rather than moving it into accounts in your children's names, you could be taxed as the bank won't know what belongs to you and what belongs to your children.

Another thing for your parents to be aware of is that the children will take control of the Premium Bonds at age 16 – not 18 - and any prizes following that will be paid directly to them.

As a result, your parents might want to instead consider Junior Isas, as these do not allow any access until age 18 and any returns are tax free. 

At the age of 18 the children have unfettered access to spend (or save) the money as they like.

Each of the children have a Junior Isa allowance of £9,000 a year, so if this has not yet been utilised, they could maximise these now, with the remainder going into the Premium Bonds. 

Then each year the Jisa allowance can be funded by cashing in Premium Bonds.

You can choose either a cash and/or stocks and shares Jisa, but as the children are so young, putting some of the money into the stock market via a stocks & shares Jisa could be a good idea as this will be a long-term investment. 

But it's important to be aware of the different risk that comes with investing into the markets, the inevitable bumps in the road.

A Jisa invested in global equities offers great diversification and can deliver stronger returns than cash, or the average return on Premium Bonds over the longer term, albeit with no guarantee of performance and more short-term volatility along the way.

When considering investments for children, your attitude to risk, investment time horizon, the ultimate use of the funds and control are all important.

With such a generous gift, it's important to consider all the options available, to find the right choice for everyone.'

The Financial Conduct Authority does not regulate cash flow planning, estate planning, tax or trust advice.

You should consult a tax adviser to check your personal circumstances.