Premium Bonds were first presented to the public in 1956 by the NS&I savings as a form of investment item and currently possessed by close to 23 million people across the UK.
Whereas bonds might present you with an excellent method for you to save, there are advantages and disadvantages that you ought to think about before putting your cash on the table.
This guide clarifies what bonds are, how they work, how you can acquire them as well as if they are worth it in 2020.
What are Premium Bonds?
The premium bonds can be explained as the National Savings Investments (NS&I) item, in which every £1 that get invested is assigned a unique number, whereby all the numbers gets included in a monthly prize draw to win a prize.
To increase the chance to win over £25 – £1 million worth of tax-free prizes, you must forgo interest rates.
So, the deal here is that, whereas your money will not gain any interest while you invest it, you increase the odds of winning up to a maximum of £1 million. However, since this is just like a lottery, the chances of not winning anything is also high, and besides, your money will not in any way shielded from reductive impacts from inflation.
As a parent or guardian, you may buy premium bonds through the NS&I website on behalf of your kids, or grandchildren of less than 16 years of age.
The National Treasury typically supports the investments NS&I and therefore guarantees 100% safety of your cash.
How Do You Acquire Premium Bonds?
You may acquire bonds any time using online and phone services from the NS&I site. In any case, if you do already have premium bonds, you might be requested for your premium bonds’ holder number.
And if you have not bought any bonds before, the NS&I would check both your identity as well as your address, and you might be needed to offer proof of the two requirements.
Every investment you make must be of the minimum amount of £25, and you may only invest in whole amounts in pounds. On the other hand, the maximum possible amount to invest in premium bonds is £50,000, any amount above the £50,000 will not be eligible to win any prizes.
How Do Premium Bonds Function?
First, you start by putting cash investment into buying a specified amount of bonds. In this case, each £1 invested, you get a unique number generated by an electronic random number indicator equipment, implying that in the case, for instance, you decide to spend £400, you will receive 400 bonds in return.
Every bond number you get is an entry into the prize draw as well as an opportunity to win up to a maximum prize of £1m. However, you ought to hold the bond for at least one month before the bond get added onto the draw.
The higher the amount of cash you invest, the more the bonds you receive and ultimately, the higher the chance you will have of winning the unclaimed prizes. It’s just like the lottery in the sense that – you may acquire more bonds as a way of increasing your chance to win the draw prize. However, you ought to understand that there is no guarantee of ever winning.
The following are most asked questions regarding how premium bonds function:
- What amount can a person invest in Premium Bonds? Every individual who wishes to invest in bonds must put at least £25 and not more than £50,000 in the NS&I savings.
- What quantity of Bonds can a person buy? The highest amount of Premium Bonds an individual may acquire is 50,000.
- How much do Bonds cost? You can buy a single bond in every £1 that you invest in NS&I savings product.
- Is it possible to invest in Bonds for children? An individual may purchase bonds for himself/herself, their children, grandchildren or even the great-grandchildren.
- What is the legal age for purchasing bonds? The legal requirement for buying bonds for yourself is to be above the age of 16.
- When do bonds draw take place? Bonds draw for prizes occurs on the 1st of each month.
How can a person check if their bonds have won?
To check if your investment number has won during the draw, you have to enter the bond numbers that you get when buying onto the NS&I premium bonds checker.
You should get informed that whereas the draw is carried monthly on every 1st of the month, the outcomes of the draw usually are not uploaded on the NS&I site until the 3rd of that month.
Every month, the bonds draw prizes for winning are as follows:
In every month, there are two winners of £1 million, while other investors win several more winnings of lower prices.
What is the most suitable time to purchase Premium Bonds?
There is not the right or wrong time to purchase bonds. However, you should understand that you need to hold onto to your bonds until the end of the month before they become eligible to enter the monthly draw. For instance, if you purchase bonds at any time during the working days in March, they would become eligible to win the monthly draw prize from May onwards.
Premium bonds are best to various groups of persons such as those who:
- Are attracted with the opportunity of winning tax-free prizes once every month.
- Wish to invest in the bond until the child, the grandchild or great-grandchild becomes 16 years of age.
- Have extra money – a minimum of £25 – that the individuals wish to invest away from the regular savings accounts.
Premium bonds may not be best for individuals who:
- Are worried about the impact of inflation on their cash savings.
- Are searching for a constant source of income or prize fund interest rate.
- Are looking for guaranteed profit returns.
Are Premium Bonds Worth it in 2020?
It is hard to conclude and explicitly tell you whether bonds can be said to be worth it in 2020.
However, for instance, if you ask an individual who recently won a prize of £100,000 within their first year after buying their first bonds, they will certainly stick to the position that bonds are worth it in 2020. On the other hand, if you ask an individual who since he/she started buying the bonds has never won any prize and has invested about to £50,000 of their cash in bonds for over three years (with no interest). Then, such an individual will undoubtedly tell you that bonds are not worth it in 2020.
Additionally, the chance you have of winning the most rewarding prizes are minimal. Therefore, you should not invest in bonds expecting to win and earn good money to become rich. It may happen; however, it perhaps will never.
In case you hold your bonds for several years, and you do not win any significant prizes, it will imply that your returns may not overweigh inflation. Thus, indicating that you would at the end, missing out on tremendous opportunities to grow your cash through other interest-earning savings.
Despite all the disadvantages of buying bonds, they are safe and more secure, thus implying that it is an honest means of investing and saving a part of your money. However, this is if you feel it is the right method for you – after all, anyone who has ever won the ultimate prize would tell your bonds are worth it in 2020.
Therefore, in conclusion, the decision of whether bonds are worth it in 2020 lies on you ultimately depending on your needs and expectations.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.