NS&I Premium Bonds are the UK’s biggest and most popular savings product, with around 22 million people saving more than £85 billion. In a nutshell, Premium Bonds are a savings account where a monthly prize draw determines any interest (prizes!) that is paid. The prizes, which range from £25 to £1 million, are paid tax free and you can access your money whenever you want to.
However, since the launch of the Personal Savings Allowance (PSA) in 2016 this tax-free incentive for savings is no longer seen as such a bonus. For those who would pay tax, Premium Bonds still have something to offer as prizes do not count towards the PSA. With Premium Bonds there is also no risk to capital as NS&I is backed by the Treasury and this safety net is often seen as a real advantage.
Some not-so-good news for Premium Bond holders is that from May 2020 the annual prize rate is dropping to 1.3% (from 1.4%), meaning the chance of a £1 bond winning any prize will be lowered to 1 in 26,000, from 1 in 24,500. This is only an ‘average’ benchmark of the potential returns however, as there is obviously no guarantee you will win anything at all – and of course it’s still the case that the more bonds you have the more likely you are to win.
Overall, Premium Bonds can still have a place for “on deposit” savings if they complement your other savings and investments. They are likely to be most advantageous if you are particularly lucky, or if you are a higher or additional rate taxpayer who has used up their Personal Savings Allowance and ISA allocation. Of course, you may have better than average luck, but don’t bank too hard on winning the jackpot!
For more Savings & Investment advice, talk to Redwood Family Wealth & Estate Planning.
Redwood Financial is one of the south’s leading Investments, Pensions,Wills, Trusts & Estate Planning providers and we are dedicated to helping families to grow, protect and enjoy their wealth. With our unrivalled knowledge of Estate Planning, Lasting Powers of Attorney, Probate, Pensions, Savings & Investments, we can advise on any situation.
We are winners of the prestigious Will Writing Firm of the Year 2018, and an approved member of the Trading Standards Buy With Confidence Scheme
