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Premium Bonds or Premium Rip Off?

The average return for Premium Bond holders is currently 1.25% and is about to be cut to 1.15% from May 2017.  This might sound OK in the current economic climate of low interest rates, but when you consider there are 2 prizes of £1Million paid out each month that are included in these averages you can understand why getting returns are becoming less and less frequent for the small £100 holders.  The NS&I even admit that there is now only a 30,000-1 chance of getting a return for every £1 ticket (that is like Leicester City winning the premiership six times).  Or in other words if you hold £30,000 you have a 50/50 chance of getting a return each month – and that will probably be only £25.

Recent disclosure and regulatory rules now mean that the website and literature the NS&I produce must tell you the following before investing:

Premium Bonds are not for savers who: 

• want a regular income 

• are looking for guaranteed returns 

• are concerned about inflation eroding their savings 

• want to buy them as a gift, unless for their child or (great) grandchild 

If you want to gamble or speculate with a small amount £100 – £500 then I would say go for it.  But if you are a serious investor and have somewhere near the now maximum allowed £50,000 I would strongly suggest shopping around to see what returns you can get for your money.

If you are resident in Spain, there are Spanish Compliant Bonds that can give you a much better average return than Premium Bonds are offering.  Please do not let your money continue to erode in real terms.  Be wise, it might be time to give Ernie the boot.

 

This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.

Other News

Assurance Vie and Fonds En Euro/Sterling

Simon VerityMany clients have sensibly opted to invest in Assurance Vie (Investment Bonds) type arrangements in France for the huge income tax and inheritance advantages offered though these products for French residents. A large selection of clients have also taken the option of using the Fond en Euros or Sterling funds preferring the guaranteed rates of return offered and the invested capital’s security.

Indeed so used are the Fond en Euros funds within Assurance vie “wrappers” that often clients believe that they are one and the same. The Fond en Euros main principles are that your capital’s value is guaranteed and you are given an annual rate of interest. The assurance vie ensures your funds grow free of French taxation due to the code of law relating to Life Insurance products. This combination has been so used in France and so much money tied up in these arrangements that the Government want to bring in a statute to limit the percentage invested into Fond en Euros per investor portfolio as they see this type of fund as stagnating the French economy and restricting investment into industry via the purchase of “actions” or shares. 

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