Premium Bond Limit Increase

Premium Bond Limit Increase.

Many savers like the security and the spice of investing in National Savings and Investments (NS&I) Premium Bonds.

Budget 2014 confirmed that the limits for Premium Bonds per person in United Kingdom increases from £40,000 to £50,000 with effect from 6 April 2015. This news item is a simple reminder of this date fast approaching and if you are keen on Premium Bonds then you may wish to increase your savings at the start of the new tax year.

Should I invest in Premium Bonds?

The odds of winning each month for a £1 Premium Bond are 26,000 to 1. This means that if you decide to increase your Premium Bond investments to £50,000, your odds of winning each month have increased to the potential of winning two prizes per month. All Premium Bond prizes are paid tax-free however the stated annual prize fund interest rate is just 1.35% tax-free.

This equates to an equivalent return required from a interest-bearing bank account of 1.69% for a basic rate taxpayer, 2.25% for a higher rate taxpayer and 2.45% for an additional rate taxpayer.

Clearly, if you are a non-taxpayer or a basic rate taxpayer your net return from a bank or building society if they are paying higher than 1.35% and 1.69% respectively, you are actually better off investing in the said bank or building society account.

Given that a new £5000 tax-free interest savings allowance is available for lower earners and lower paid pensioners from sixth of April 2015 and the fact that in the Budget 2015, the Chancellor announced a new personal savings allowance of up to £1000 per annum tax-free interest for a basic rate taxpayer and a £500 tax-free interest personal savings allowance for a higher rate taxpayer, we suggest that bank and building society accounts paying interest rates in the order of 1.35% to 1.69% may be still more attractive for basic rate and non-taxpayers. Although for higher rate taxpayers and additional rate taxpayers where the equivalent yield required is 2.25% and 2.45% respectively, may mean that Premium Bonds still represent an attractive investment for these people.

The just may be though that given that National Savings and Investments (NS&I) will also be offering two £1 million prizes each month instead of currently just one, many savers including non-taxpayers and basic rate taxpayers may still like the spice and excitement of potentially winning the jackpot in addition to the exciting moment where one or two Ernie letters land on your doorstep.

National Savings and Investments (NS&I) have the security of being backed by the British government.

The minimum investment is £100.

Premium Bonds are not suitable for investors who wish to secure guaranteed investment returns for a regular income or wish to have inflation protected income given that whilst inflation today is at 0%, in the future (and indeed in the past) it has been and will be above 1.35%, meaning that your capital erodes.

That said, if you like spicy investments with capital security and a little flutter then maybe Premium Bonds are for you.