Premium Bonds ‘should only be used for surplus cash’ Expert on alternative savings options | Personal Finance | Finance
This is something NS&I explains on its website. On the Premium Bonds section, the Government-backed savings provider says they “maybe not” be the right option for those who want a regular income or guaranteed returns.
Additionally, people concerned about inflation may not suit this savings option, nor would people who want to save jointly with another person.
Chartered Financial Planner Kay Ingram, who is the Director of Public Policy at LEBC Group, recently spoke to Express.co.uk about Premium Bonds.
“Both adults and children may own up to £50,000 each,” she explained.
“If Premium Bonds are bought for a child by someone, who is not the parent, they will need their consent to be responsible for them until the child is 16.”
The chartered financial planner went on to discuss whether it’s always the right option for everyone.
“But is this the best way to invest?,” Ms Ingram said.
“The NS&I website warns that it is not if you need an income from your investment, nor if you are keen to inflation proof your savings as Premium Bonds will do neither of these things.”
The chartered financial planner went on to discuss alternatives.
“There are other ways in which a return on an investment can be guaranteed and at far more than one percent.
“For example, taking advantage of savings which attract tax relief can give a known uplift to savings without the help of luck.
“Examples include investing in a pension plan, or Lifetime ISA (LISA) where
every £8 saved will be boosted by £2 from the Government adding 25 percent to your own savings.
“Lifetime ISAs can be opened from age 18 to 39 with savings, of up to £4,000 a year, can continue till age 50, with the Government chipping in up to £32,000 over that time.
“A LISA grows tax free but can only be accessed without penalty as a deposit for a first home or after age 60.”
Ms Ingram went on to discuss pension contributions and the tax relief which comes with it.
“Pensions can be opened at birth and up to age 75, a contribution of up to £2,880 can be paid in each year for non-earners and will gain up to £720 per year from the taxman,” she said.
“Those with earnings can contribute up to 100 percent of their taxable earned income, capped at £40,000 a year, and higher and top rate taxpayers can claim back additional tax relief at the top rates they pay of 40 percent or 45 percent.
“Pension plans also grow tax free but cannot be accessed until age 55 (57 from 2028) and then only 25 percent of the proceeds are tax-free – the balance is taxed as income when drawn.”
The length of time a person wants to commit to when it comes to their savings should be considered though.
“These alternatives to Premium Bonds are longer term investments, but the tax relief they attract gives more certain returns than NS&I Premium Bonds,” Ms Ingram said.
“Premium Bonds should only be used for surplus cash as a short-term punt and not as a long-term investment.”