Cry, the beloved NS&I income bond
Originally launched by the UK Government as the Post Office Savings Bank in 1861, the NS&I provided the opportunity for both the public to save and as the government to fund the deficit. To encourage post war saving in 1956, Premium Savings Bonds were introduced - but not without some political and religious opposition. Despite the resistance, NS&I has since evolved into one the largest savings organisations in the UK and has approximately 25 million customers and more than £179 billion invested.
The history of the NS&I income bond
The UK’s faithful public have twice previously been asked to fund the country’s war time efforts and it was with Great British patriotism and fortitude that those calls were answered. Fast forward nearly 80 years and with the technological capability to answer a call anywhere on the globe, the call has once again been made. This time however, the battle is against an invisible threat and one has to question whether or not the British public have the motivation to answer, considering the nearly invisible returns NS&I are offering as of 24 November 2020.
It was little over 12 years ago that an NS&I tax free Direct ISA was offered at 5.3% aer, and an NS&I taxable income bond was offered at 4.8% aer, but on 24 November 2020, these plummeted to just 0.1% and 0.01% respectively. To put that into perspective, a £10 000 investment into a NS&I Income Bond could net you just 60p after 12 months. However, if you haven’t yet used up all of your annual allowance, you can expect to receive an impressive £1 for your £10,000 investment.
Are NS&I bonds a good investment?
Whilst investing with NS&I would usually be considered a risk free “investment”, one has to be cognisant of the fact that first world governments have recently defaulted on their repayments. In answering, 'are NS&I bonds a good investment?', one also has to resign themselves to the fact that at the average UK inflation rate of 1.79%, your £10,000 NS&I income bond investment would be reduced to just £9821.98 over 12 months which is only marginally better than if you stuffed your moneyunder your pillow – somewhat uncomforting, if not uncomfortable.
The beloved premium bonds, which initially managed to overcome such scepticism because of their resemblance to gambling, haven’t escaped the proverbial chop. The odds of winning have been slashed from 1 in 24,500 to just 1 in 34,500 and over 1 million fewer prizes were distributed in December 2020 as opposed to September 2020. Adding coarse salt to the aforementioned wound, Premium Bond holders are not guaranteed any winnings nor do they reinvest any, thus missing out on the remarkable effects of compounding.
Is NS&I tax free earnings?
Many UK expats living in the likes of Spain are completely unaware that despite the paltry odds of winning, there is an additional slap in the face, because all winnings are taxed as income. In contrast and with a cautious approach, if £10,000 was invested in a Spanish Compliant Investment Bond with an Investment Firm that can trace its heritage back to 1848, has £352 billion under management and has over 5 million clients, it would be worth approximately £10 480 after 12 months. Additionally, thanks to compounding, it could be worth £12 640 after 5 years.
So, if you are willing to accept that past performance is not indicative of future results, you are probably in the same boat as many of those who declined the Government's NS&I income bond call, in favour for some real returns for some calculated risks. With such minuscule incentives from NS&I compounded by reduced odds, many are left asking NS & why?
Why not increase your odds and give me a call today on +34 633 977 955 for a free, no obligation consultation to explore your options and/or alternatives?
The value of your investments can go down as well as up and you may not get back what you put in.
This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity.”