Is there much value in Premium Bonds?

Published on June 17, 2016 by Andrew

Premium Bonds Investments?

Recently, the ultimate Premium Bonds prize of £1 mil was won for the first time after the investment cap was raised to £50k in June last year. The recipient, from West Scotland, just the 2nd ever top prize recipient from that area, had put in the maximum contribution, whilst another investor from Surrey is now also a millionaire the very same month after contributing £23,950.

However, while Premium Bonds continue to be popular, with £59.8 billion in them, which makes them one of the most abundant forms of personal savings products, are they really a beneficial investment or not?

Many would believe that they are not really an investment. The ‘rate’ provided on Premium Bonds is the average sum the investor may expect to win throughout a year, which makes them more comparable to a lotto ticket than a means of saving. The ‘rate’ was reduced from 1.35% to 1.25% recently, essentially reducing the chances of winning from 28,000 to 1, to 30,000 to 1. The quantity of big prizes being paid has also been reduced, and the prizes of £50 and £100 have increased.

And so, is it really worth putting money into Premium Bonds? The most significant draw is guaranteed security, because the government protects all of the money you put into NS&I investments. You may also withdraw money from your bonds at any time which, when coupled with security, means Premium Bonds maintain their attraction. Because the tax-free prizes range between £25 and £1 million, there’s also the possibility of a major win. Savings rates have continued to fall in the last few months so don’t be shocked if there are more people interested in Premium Bonds soon.

The big negative of Premium Bonds certainly is the absence of any guaranteed returns. Because you are in essence entering a lottery, there’s a high probability you could receive no return, and your capital is also subject to erosion via inflation. Because the average return is just 1.25% and pay-outs aren’t divided equally between bonds, a £1 million prize will mean that 1000s of bonds won’t get a penny. Whilst surprise cheque in the post from time to time looks like you’ve made a reliable investment, it’s unlikely many investors will in fact bother to calculate the amount of return they’re actually getting.

In reality, Premium Bonds don’t really provide a wise selection for those looking to invest large amounts, as part of a long-term savings plan, however they may lend themselves to harmlessly gambling, should you have some spare money remaining after careful investment planning. through inflation. As the rate is only 1.25% and pay-outs are not equally divided between bonds, a £1 million prize means that thousands of bonds won’t receive a penny. Whilst an unexpected cheque in the post every so often gives the impression that you’ve made a solid investment, it’s unlikely that many investors will actually bother to work out the rate of return they’re getting.

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