Premium bonds “should only be used for excess cash” Expert on alternative savings options
This is something NS&I explains on their website. On the Premium bonds section, the government-backed savings provider says they “may not be” the right option for those who want regular income or guaranteed returns.
In addition, people concerned about inflation may not be suitable for this savings option, nor those who want to save together with someone else.
Certified Financial Planner Kay Ingram, Director of Public Policy at LEBC Group, recently spoke to Express.co.uk about premium bonds.
“Adults and children can own up to £ 50,000 each,” she explained.
“If premium bonds are purchased 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 years old. “
The Certified Financial Planner then asked if this was still the right option for everyone.
“But is this the best way to invest?” Ms. Ingram said.
“The NS&I website warns that this is not whether you need income from your investment, nor whether you want to protect your savings against inflation, because premium bonds will do none of that.”
The certified financial planner then discussed the alternatives.
“There are other ways to ensure a return on your investment well above one percent.
“For example, taking advantage of savings that attract tax breaks can yield a known increase in savings without the help of luck.
“Examples include investing in a retirement plan, or Lifetime ISA (LISA) where
every £ 8 saved will be increased by £ 2 by the government, adding 25% to your own savings.
“Lifetime ISAs can be opened from 18 to 39 with savings of up to £ 4,000 per year, can continue up to age 50 with the government contributing up to £ 32,000 during this period.
“A LISA grows tax-free but is only accessible without penalty as a deposit for a first home or after the age of 60. “
Ms. Ingram then spoke about pension contributions and the resulting tax breaks.
“Pensions can be open at birth and up to age 75, a contribution of up to £ 2,880 can be paid annually for the self-employed and will earn up to £ 720 per year from the tax authorities”, a- she declared.
“Those with income can contribute up to 100% of their taxable income, capped at £ 40,000 per year, and higher and higher taxpayers can claim additional tax relief at the highest rates they pay 40% or 45%.
“Pension plans also grow tax-sheltered, but are not accessible until the age of 55 (57 from 2028).
However, the length of time a person wishes to commit to their savings must be taken into account.
“These alternatives to premium bonds are longer term investments, but the tax relief they attract provides more certain returns than premium NS&I bonds,” Ms. Ingram said.
“Premium bonds should only be used for excess cash as a short-term kick-start and not as a long-term investment. “
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