Q Will my National Savings & Investments Premium Bonds be secure if the UK leaves the EU? My wife and I have been putting money into bonds for years in order to buy a house. The government claims they are safe, but I have lost faith in politicians.
From the government’s perspective, NS&I serves as a substitute for the gilts market in terms of supporting government spending, and they, like gilts, are backed by the UK government. Your money is absolutely safe in this regard, and Brexit will in no way cause you to lose money.
Are Premium Bonds safe now?
Premium Bonds have no danger to your capital, thus the money you put in is completely safe; the only risk is the ‘interest’. And because Premium Bonds are managed by NS&I, which is backed by the Treasury rather than a bank, this capital is as safe as it gets.
Can you lose money on NS&I Premium Bonds?
No, because NS&I is a Treasury-approved and regulated company rather than a bank, your money is completely safe.
Even if you’re a bad luck client who never wins, the money you invest in Premium Bonds is protected. Although not always in terms of money’s true value.
Your money is dwindling in terms of what it can buy unless you win enough to stay up with the rate of inflation, which is currently 0.9 percent.
Are premium bonds protected by FSCS?
Premium Bonds from NS&I allow you to save for the future without risking your initial investment. Because NS&I (National Savings and Investments) is a government-owned company, it is supported by HM Treasury. Premium Bonds have been available since 1957 and continue to be extremely popular, with over 21 million people investing a total of £72 billion.
You don’t get paid interest, but you are entered into a monthly prize draw at random. Simply put, one pound buys one bond, therefore the more you invest, the better your chances of winning. And it’s truly random; the ERNIE (Electronic Random Number Indicator Equipment… catchy) technology that produces the winning bonds is independently validated each month before the winners are announced.
To acquire bonds, you must be at least 16 years old, although you can do so on behalf of your children, grandkids, or other family members. Many parents, guardians, and grandparents, in particular, purchase Premium Bonds as a potentially important gift for their children on their 16th birthday.
What could you win?
The prizes vary from £25 and £1 million. There are two £1 million rewards awarded each month, implying that the odds of winning the jackpot are more than one in 31 billion! The smaller the value of the award, the more prizes are offered each month. There are 1,677 £1,000 awards and 2,879,959 £25 rewards, for example.
It’s important to keep in mind that winning a reward and getting a return on your investment are not guaranteed. The average payout ‘Annual prize fund interest rate,’ according to NS&I, is 1.40 percent, although you can have a hard time achieving that with average luck. It is impossible to win £1.40 for every £100 because the minimum prize is £25.
There are very complicated calculations that go into calculating your exact chances of winning a reward, but we estimate that you’ll need around £20,000 in bonds to get close to the rate quoted. If you’d want to evaluate your potential profits, MoneySavingExpert has created a handy calculator.
Is it really worth it? It’s completely up to you! But, before you decide to buy Premium Bonds, consider the following advantages and disadvantages:
- You could be worth a million dollars! Everyone likes the prospect of a huge victory, and the chance to win up to £1 million is enough to entice some individuals to invest.
- Premium Bonds have no investment risk because they are backed by the government. Previously, this was more of a selling feature, but the Financial Services Compensation Scheme (FSCS) now protects all UK savings accounts up to £85,000 per person, per institution.
- They aren’t taxed: Premium Bonds are tax-free both in terms of income and capital gains, which is wonderful news for higher-rate taxpayers who may be nearing the end of their Personal Savings Allowance (PSA). The PSA limits a higher or top-rate taxpayer’s tax-free interest from most other types of investments to just £500. However, we recommend that you make the most of your £20,000 2018/19 personal ISA allocation, which is tax-free.
- Premium Bonds are instantly accessible since they are backed by a government commitment to buy them back at the same price you paid for them, i.e. £1 each. That means you can take your money out whenever you want and not worry about being charged for it.
- The ability to auto-invest: Investing any earnings right away works on the same premise as compound interest in traditional cash investments, in which previous gains attract new gains. You can only invest automatically up to £50,000; after that, you will be paid directly to your selected bank account or by check.
- There’s no interest: If your Bonds aren’t chosen at random in the monthly prize draw, you won’t get any returns on your money.
- The odds aren’t in your favor: you have a 1 in 24,500 chance of winning anything (i.e. the £25 minimum). Because greater rewards are less common, the odds of winning anything more than £25 are much higher.
- Inflation: As the cost of living rises, an investment with a fixed value loses buying power over time. Currently, the ONS reports an inflation rate of 2.2 percent, which is 0.8 percent lower than the NS&I forecast. This means that your money will lose value over time in actual terms.
- Currently, all investments are tax-free: Premium bonds used to be unique in that they were tax-free, but since the PSA was implemented in 2016, the vast majority of depositors have seen no tax responsibility on their returns. That implies you have the choice of using other investment options that may provide superior results.
- Bonds purchased are placed into their first draw when they have been held for a full reward cycle. This implies that any funds invested in December will be held until the January prize draw, preventing you from winning.
There you have it; they have the potential to make you a millionaire or they have the potential to drain your wealth due to inflation. Their appealing attributes of being tax-free and having a good chance of winning have been somewhat eroded in recent years.
How will Brexit affect my finances?
In most cases, Brexit will have no impact on your ordinary banking and financial goods. As a result, your present accounts, credit cards, and insurance policies will remain unchanged.
If you’re a customer of a company that’s registered in an EEA nation, you might have a bigger problem. Any changes should be communicated to you, but if you are unclear, contact your provider.
Making and receiving payments abroad
While traveling outside of the EU, you can still make payments to EU bank accounts and withdraw cash. However, due of Brexit, it may be more expensive and time consuming.
This is because, in order to authorize payments, banks and payment providers must exchange more information about you.
Card payment fees
When purchasing goods from EU stores, you may have to pay a bit more. Mastercard will charge EU companies extra to process credit and debit card transactions for UK online buyers starting on October 15, 2021.
These costs will almost certainly be passed on to us in the price of the things we purchase. Fees that payment companies might charge were previously capped by EU regulation.
Financial Services Compensation Scheme
If your bank or building society goes bankrupt, the FSCS will protect your money up to £85,000 in your account.
If you are based in the United Kingdom and your bank is registered and authorised there, nothing changes.
If you’re with a provider based in the European Economic Area, you should still be covered by the scheme.
What will happen to my state pension if I retire abroad?
UK retirees living in EU nations receive a yearly rise in their UK state pension, just as they would if they stayed in the UK.
The administration has affirmed that the pension increases for expatriates will continue. This is true whether you currently reside in the EEA or Switzerland or want to relocate in the future.
However, beginning in January of next year, Brexit changes will affect UK citizens working in Australia, Canada, and New Zealand.
Years spent working in these countries will no longer count as qualifying years on their NI record beginning in January 2022.
Is it better to buy premium bonds in a block?
Q I have £27,000 in premium bonds that were issued in blocks of £2,000 and £1,000, and my winnings have been poor (£600 in the last three years).
Could you kindly tell me whether there is any evidence that holding one entire block rather than having them divided up as they are now would be better? I realize that if this is asked, it can be done, but I will forfeit one month of participation in the drawing.
A There are numerous theories. There is no evidence, however, that owning premium bonds in a single block increases your chances of winning. Otherwise, it would have become well known very quickly.
The R in ERNIE denotes a ‘random’ (Electronic Random Number Indicator Equipment) selection of the winning numbers, which has been the case since the inaugural draw in 1997. Each month, ERNIE is designed to select 2.5 million numbers, which are subsequently matched to 1 million eligible bonds (many of the numbers include bonds not yet sold or those which have been cashed in).
Since the introduction of the national lottery, premium bonds have grown in popularity to the point that total holdings are now about £25 billion, making the odds of winning the single £1 million top prize astronomical. The average payout is set at 3.2 percent net, but this covers all of the rewards given out, implying that the government is borrowing money at a low rate.
The fact that the earnings are tax-free on an investment where you can always get your money back is a major selling point. Unlike the lottery, which is a zero-sum game. You could sell your bonds and then buy them back to cover consecutive numbers. However, as you point out, this will cost you a month in the draw and will not increase your chances of winning. Don’t get too down on yourself. It appears that investors frequently receive nothing or very little for long periods of time before experiencing a run of excellent fortune.
Has anyone ever won a million on premium bonds?
Hannah won the £1 million jackpot for the first time in August 2004. Her winning Bond, 50HXH949682, was purchased with a £3,000 investment in February 2003.
“On a Sunday afternoon, Agent Million arrived. It had a significant impact on my life. When I found out what I’d earned, I almost passed out. I was completely taken aback.
“I was living on a £108 pension a week before I won, so you can imagine how much that altered my life.” I acquired a house and immediately invested the maximum amount (in Premium Bonds). I still earn £50 a month, and to be honest, those victories give me almost as much pleasure.
“I’ve only informed a few people, just those who could share the secret while remaining normal.” I do occasionally tell others that I’m having a great time thanks to ERNIE.”
What happens to Premium Bonds after death?
Any rewards won will be paid by warrant (like a cheque) to the person entitled to the money when we’ve processed the claim once we’ve received notification of the customer’s death. Any prizes the customer wins before then will be held and sent once the claim is finalized. Then, after each prize draw, we’ll send any future prizes earned by warrant to the person who is entitled to the money.
We are unable to award these prizes online or to consolidate and pay them at the end of the year.
How can I buy UK government bonds from 2021?
Investing may be a risky business, and how you choose to invest will be determined by your risk appetite. Government bonds are generally thought to be a safer investment than stock market or business bond investments. UK government bonds, often known as gilts, can be purchased through UK stockbrokers, fund supermarkets, or the government’s Debt Management Office. Bonds are fixed-interest instruments designed to pay a consistent income that governments sell to raise funds.
Premium Bonds allow you to invest anywhere between £100 and £40,000. Each month, a draw is held, with Premium Bond holders winning roughly £100 million. A £1 million jackpot is the highest prize.
You are not required to report it on your tax return. Premium Bonds can be purchased by anybody over the age of 16, and you can also purchase them on behalf of your kid or grandchild.
How to use this service
To apply, download the PDF application form from the National Savings and Investment website and mail it back to them.
The following link will lead you to a page with an application form and links to more information about how the bonds work. A copy of Adobe Reader is required to access the form.
What is the disadvantage of premium bonds?
Since 1957, National Savings and Investments (NS&I) has marketed Premium Bonds. They are a risk-free option to save because NS&I is supported by HM Treasury and is part of the government.
Premium Bonds do not pay interest, but they do have a monthly prize draw with prizes ranging from £25 to £1 million.
Each bond costs £1 and includes a unique reference number that is used to enter the draw. That implies that for every pound you invest, you may be eligible to win a prize once a month (though it is highly unlikely).
Premium Bonds are only available to those who are 16 years old or older. They can, however, be purchased on behalf of children, grandchildren, and great grandchildren and kept by an adult until the child reaches the age of sixteen.
In 2008, premium bonds were a big issue. People were looking for a safer way to save during the financial crunch, and Premium Bonds, which are backed by the government, cannot lose their value. People were also drawn to the product because of the increased chance of winning more money.
There are presently 74 billion Premium Bonds in circulation, with approximately three million winning a prize each month.
Prizes range from £25 to £1 million, with lower-value awards being granted more frequently than higher-value prizes.
It’s vital to keep in mind that there’s no assurance that you’ll win anything. The monthly prize pool determines the “average rate of return,” which is now 1.4 percent.
It’s not as simple as assuming that if you buy Premium Bonds, you’ll get a 1.4 percent return. There are several factors that go into determining your exact chances of receiving prize money in that amount, but we estimate that you’ll need to invest roughly £20,000 in bonds to get close to the average return.
This calculator can be used to determine your chances of winning and potential profits.
Advantages and Disadvantages
Is it worthwhile to invest in Premium Bonds? It is entirely up to you to make that decision. Before making any decisions, it’s a good idea to consider all of the possibilities:
You will not see any rewards on your investments if your Bonds are not picked in the monthly prize draw.
Everyone enjoys the prospect of winning a large sum of money! The thrill of the prospect of winning £25 to £1 million for each Bond held is enough to entice some investors.
While the mathematics required to determine your chances of winning are complex, it is currently believed that the possibility of winning any prize is 1 in 24,500 for each individual Bond held.
Premium Bonds are backed by the government, hence there are no risks involved. In the worst-case situation, the bonds purchased are never selected as a reward, and the account balance remains unchanged.
Though the numerical value of your savings cannot be reduced unless you remove money, the real-term value can. Because the cost of living is rising, a stable investment value that does not rise will lose purchasing power over time.
Savings are always tax-free, which is one of the key benefits of bonds: higher-rate and even basic-rate taxpayers can invest substantial sums with no tax consequences.
Since the Personal Savings Allowance was introduced in 2016, most savers have seen no tax liability on their returns. That means savers can invest in vehicles that provide higher returns, and the lack of tax is no longer a distinguishing or compelling feature.
Premium Bonds are backed by the government’s promise to buy them back at the same price you paid for them. That means you can take your money out whenever you want and not worry about being penalized.
After the bonds have been held for a full prize cycle, they are entered into their first reward draw. This implies that Bonds purchased in March will be retained until the prize draw in May. Borrowing from your Premium Bonds could result in you missing out on a successful month.