"Say Hello to
Independent Financial Advice"
A Consumer's Guide to
Are NS&I Premium Bonds now more attractive?
A premium Bond can win can make your day, but does the recent boost to the NS&I Premium Bonds prize draw fund make the bonds worth saving into? And if so, for which savers?
NS&I Premium Bonds have always had a distinct advantage for savers in that they are backed by the UK Treasury. This means unless the British Government defaults on its debt, your money is safe.
Recently, NS&I raised its Premium Bond prize fund for the fifth time in the past year. From March 2023 it has been 3.3%, giving an extra £15 million in prizes to be won. The number of prizes worth £50 to £100,000 has also increased.
In answer to the question of whether this makes Premium Bonds worth saving into, let’s look at the benefits and whether they stack up against other forms of saving.
1. Government backing for Premium Bonds. Provides a high degree of security and confidence, but the Financial Services Compensation Scheme (FSCS) now gives protection of individuals’ capital up to £85,000 per financial institution, which in theory, gives equal protection to that set amount.
2. Premium Bond winnings are free of tax. The introduction of the Personal Savings Allowance – £1,000 for standard rate taxpayers, £500 for higher rate payers and zero for those in the additional rate tax bracket – means many people no longer pay tax on their savings income in any case. The tax-free nature of Premium Bonds can make Premium Bonds attractive to the highest rate taxpayers who receive no savings allowance.
3. Chance to win prizes up to £1 million. The prize draw element is a large part of the appeal of Premium Bonds. Selected at random, every bond has a chance of winning no matter when or where it was bought. But NS&I says the odds of each £1 bond winning a prize is 24,000 to 1. The more bonds you hold, the maximum is 50,000, and the greater the chance you have of winning.
As well as boosting the premium Bond fund, NS&I also increased the interest rate it is paying on its Direct Saver and Income Bond products from 2.60% to 2.85% gross (2.89% AER). For savers who want a defined income, these bonds may be more attractive.
But neither of these rates are above the current rate of inflation, so unless you need to keep your money in cash, it is worth considering whether to invest instead in a stocks and shares ISA, which could deliver a higher rate of return on your capital.
Lowes Financial Management is authorised & regulated by the Financial Conduct Authority.
straight to your inbox