Are Premium Bonds Worth the Investment?
Can Consumers Hit the Jackpot With a National Savings Premium Bond?
Sep 13, 2009
The best known product in the Government's National Savings portfolio is probably the Premium Bond. For many years UK consumers have put their savings into these bonds on the grounds that they could see a fantastic return on their investment if they are a lucky winner. These are also perceived as an extremely safe investment in that there is no way that an investor will lose any of their cash. So, are Premium Bonds worth an investment?
The Advantages of Buying Premium Bonds
Many people will use their spare cash to invest in Premium Bonds. Some will invest a large lump sum, whilst others will simply buy a few bonds at a time (either for themselves or for others). So, what are the advantages?
- This is a 100% no risk investment. People can cash in their bonds at any time with no charge or penalty and they'll get all of their money back.
- Each bond that an individual owns is put into a monthly prize draw. If a bond is picked out then they will win a prize. This can range from the base prize of £25 through to the jackpot prize of £1 million.
- Winners can see their money potentially earn far more than the rates given by standard savings accounts.
- Any prize won by a bond is completely tax free.
- Each individual £1 bond is given an equal chance of winning a prize as each bond equals one entry into the draw.
So, those looking for a safe investment that could give impressive returns may well opt for Premium Bonds as an option. Let's take a look at the disadvantages.
The Disadvantages of Buying National Savings Premium Bonds
The fact that Premium Bonds are a safe and easy way to save works well for some. But, others may not find that this is the best investment route to take. What are the disadvantages?
- There is no guaranteed return on investment here. Those that don't win prizes won't see their money grow. Even a standard savings account or an ISA will pay some interest. Premium bonds only help money grow if the bond wins.
- People with just a few bonds may be less likely to win a prize than those who own a lot.
In general terms, however, the more Premium Bonds an individual buys from National Savings, the greater their chance of winning. Even winning a couple of small-medium sized prizes a year sees many investors earn more than they would get by putting their money in a standard savings account.
Many will, therefore, now buy bonds regularly via direct debit to build up their investment over time and this could be a good way of making Premium Bonds work for them.
Those looking to find other ways to avoid savings tax may be interested in taking a look at other National Savings & Investment accounts or A Guide to Tax Free Savings.
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