Premium Bonds make an attractive bolthole for cash when even the Chancellor of the Exchequer is looking hard at the lifeboats.
By Jeremy Gates
Even though Sir Alan Sugar has cut his TV advertising efforts lately, Premium Bonds make an attractive bolthole for cash when even the Chancellor of the Exchequer is looking hard at the lifeboats.
Have a gamble, and get your (Government-guaranteed) money back whenever you need it! The simplicity is appealing when so many other investments - bricks and mortar, shares, private pensions - are going down the drain.
Savers stashed £15.5bn into National Savings in 2007/08 and 43% of that - some £6.6bn - bought Premium Bonds, by far its biggest seller.
According to National Savings and Investments (NS&I) last year alone, money invested in National Savings saved taxpayers £375m, by reducing the cost of Government borrowing. Nearly half that saving - around £170m - presumably came from Premium Bonds.
In September's draw, ERNIE 4 is paying out over 1.6m prizes, worth more than £104m. Some 36.8bn Premium Bonds are eligible for a prize.
It's been a remarkable boom and continues despite the promise of NS&I chief executive Jane Platt, in her 2007/08 report, to "shift the emphasis away from this product by bringing other key products to the fore."
In 1997, when Mr Brown began his long Chancellorship, savers held £8.6bn in Premium Bonds. Now it's nearly £36.5bn - nearly half the total £82bn held by NS&I to cut the cost of our national debts.
In one month alone - October 2006 - we sank a record £2.2bn into Premium Bonds when their 50th anniversary was marked by five £1m monthly jackpots. Around 400,000 people hold the maximum investment allowed of £30,000.
Nearly £30m worth of Premium Bond prizes still wait to be collected. Long-forgotten winning numbers can be traced on the NS&I website.
The late-1990s surge in Premium Bond buying - ironically as the London shares sailed serenely towards the bursting 'high tech bubble'- enabled NS&I to double its jackpot to two £1m winners in August 2005.
Maybe the National Lottery - which means millions of people actually losing money every Saturday night - makes Premium Bonds more attractive, because the gambling chips are never lost?
Possibly we buy Premium Bonds in the Titanic spirit: let's have a gamble to keep spirits up.
In my case, whenever a regular National Savings mailshot falls through the letter box, I check our bank current account to see if any spare cash is earning a derisory 0.10% interest at Lloyds TSB and bung another £200 off to the Premium Bonds HQ in Blackpool to get a centimetre or two nearer a £1m monthly jackpot.
I suppose my wife and I are too lazy to find a better, more accessible place for the cash. Four or five-years-ago, our Premium Bond winnings held steady around £1,000 a year.
Since then our stake has steadily increased and winnings have shrunk drastically.
But I still got a a shock the other day when I tallied up the winnings for 2008 - a measly £200.
If our Premium Bond stake was safely invested in a building society account paying around 6%, it would gross nearly £1,300 per year. Are we really paying more than £1,000 a year for the vain hope of becoming millionaires?
Could a crafty computer be pegging us back in the queue, so needier players - possibly with big mortgage repayments - get the nod instead? Or are prizes used to encourage newer players: the odds on anybody getting a prize with a £1 bond are 22,000 to one.
Cynics might suggest that if Gordon Brown is cutting spending for the Army and Navy in attempts to balance his books, he is probably siphoning off a few of the goodies bound for Premium Bond gamblers too.
I couldn't possibly comment, but I may be one of the few dissatisfied Bond dabblers in town. NS&I insists its payout is equivalent to an interest rate of 3.4%.
Some financial advisors quite like Premium Bonds, too.
Colin Jackson at Baronworth Investment Services says: "When you have made regular investments and still have a bit left over, I see a case for putting it in Premium Bonds rather than a building society.
"There is always a buzz with Bonds, even when you only win £50, and always that outside chance of a big win.
"For a higher rate taxpayer, there is the added attraction of tax-free prizes. Anybody holding the maximum £30,000 in Premium Bond can expect 1.5 prizes per month, and experience tells me that that is not far out," he says,
Of course, Premium Bond players like myself who have stopped winning prizes really ought to withdraw their money - or get their heads examined. The problem is that many of these people might not know who they are.
:: INFORMATION: ERNIE 4 has just picked his 217th and 218th millionaires, a man in Somerset and a lady in Manchester, since £1m jackpots arrived in 1994.
Premium Bonds can be bought on 0500 007 007 and online at www.nsandi.com, while brochures are available in 400 W.H.Smith stores in the High Street and 155 of its travel agencies.
:: This week, thousands of employees working for many of Britain's leading companies got a good opportunity to boost their long-term savings plans. But they probably didn't realise it.
Following a Treasury decision, bonus rates payable on Save As You Earn (SAYE) Sharesave Schemes substantially increased on three, five and seven-year saving schemes.
A SAYE scheme is a savings plan where employees invest a fixed amount of £5-£250 a month over a three, five or seven-year term. At the end of the agreed period, employees use the money, plus the bonus, to buy discounted shares in the companies they work for.
If they don't want the shares, they can have their savings returned to them, plus a bonus. Those bonus rates were increased from September 1.
Sharesave will be a great opportunity for employees in those companies where shares have been hammered, sometimes by the activities of hedge funds.
I am thinking of companies like housebuilders and High Street banks where share prices are likely to be significantly higher in a few years time, unless we have pulled down the shutters altogether on capitalism.
Workers in companies with bombed-out share prices can really make a one way bet: if their share price doesn't recover, they simply walk away with extra savings.
If it does, they could treble or quadruple their money. But they must have spare cash to save, each month, to ensure they amass a decent lump sum.
The new bonus rates apply to employees signing up to SAYE contracts on and after Sept 1.
:: INFORMATION: Sharesave details available from ifs ProShare on 0207 444 7104 and www.ifsproshare.org.
POUNDNOTES
:: The new Post Office Cash ISA paying 6.25% on minimum £1 invested looks generous but that figure includes a 1.50% bonus on all deposits in 2008/09 for 12 months from the date of the deposit. No notice period is required for withdrawals and there are no withdrawal charges.
However, the promise that the Cash ISA will track Bank base rate and never be more than 1% below it is not such good news if the Bank cuts rates sharply to beat recession.
Post Office director of savings Richard Norman says: "We now have over 500,000 customers for our savings range, and hope the launch of a cash ISA will benefit new and existing customers."
Post Office enquiries: 0800 169 7500 and visit your local branch.
:: Consumers with big credit card debts have more hope of landing a 0% balance transfer deal if they move to another card, says Michelle Slade at Moneyfacts.co.uk, after a big increase in the number of 0% deals lasting 12 months and more.
"On a £5,000 debt, and an interest rate of 15.9% APR, repaying the minimum each month (2%, or min £3) means you end up paying an additional £7,548 in interest over 43 years," Slade says.
"Switch to Virgin Money's MasterCard offering 0% for 15 months and interest is cut to £1,786, and the time to repay is cut to 11 years, saving a potential £5,762 in interest."
Slade reckons the increase in longer term balance transfers comes at a price, with a sharp reduction in the number of cards offering introductory purchase deals.
"Today, just 6.7% of cards offer 0% for nine months or more compared to 15.6% in August 2007," she says.
:: If you want to invest in shares without losing money, Yorkshire BS's new Guaranteed Investment Account allows savers to benefit from potential growth in the stock market over the next six years, without the risk of buying shares.
Available exclusively through the society's website, the account fully guarantees all capital invested and provides a minimum return of 30% (equivalent to 4.47% AER).
Maximum return, linked to the FTSE-100 index, is set at 60% (equivalent to 8.37% AER) and an additional 2% will be added to accounts opened before September 30, giving a minimum return of 32% and a maximum of 62% over six years.
Savers can also use the account as a traditional cash ISA, ensuring a tax-free return.
Minimum investment in the account is £3,600, maximum £1m. There is no access to the funds during the term of the account, with interest added only at the end of the term.
Enquiries: www.ybs.co.uk.
:: The decision of big lenders to reduce the minimum monthly repayment required on credit cards - down to 2.25% at Citibank and 2.5% at Clydesdale Bank, for example - looked helpful, but price comparison site uSwitch.com reckons it can cause a big increase in the amount of interest payable.
For instance, a Beijing return flight costs an average £739 but a cardholder making the minimum repayment over 22 years and three months would actually pay interest totalling £1,324 - almost double the cost of the holiday.
Flights and a seven-night hotel stay in New York cost £2,532 or £8,039 if minimum repayments only are made each month at the lowest rate of 2%. This means interest charged for the holiday would total £5,507.
Simon Linstead at uSwitch.com says: "Consumers who are tempted to just make the minimum repayment on their credit cards could end up paying far more than they need for every purchase made."
Enquiries: www.uSwitch.com and 0800 093 0607.
:: HIGH FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
ICICI Bank UK www.icicibank.co.uk 7.20% (F) HiSAVE Fixed Rate 12 Month Bond £1,000 OM
First Save www.firstsave.co.uk 7.10% (F) Fixed Rate Bond One Year £1,000 OM
Heritable Bank 0845 607 1212 6.60% 60 Day Notice Issue 2 60 Days (B) £1,000 Yly
Whiteaway Laidlaw Bank Ltd 0161 833 5444 6.56% 60 Day Bonus 60 Days £1,000 Yly
Anglo Irish Bank 0845 455 2222 6.55% Seven Day Notice Two Seven Days (B) £1 Yly
:: TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494 999 5.39% for two years 90% £999 Yes
West Bromwich BS 0800 298 0008 5.59% to 30/09/13 75% £999 Yes
Cheltenham & Glos 0800 272 131 5.95% for term 75% £1,094
Market Harboro BS 01858 412 250 5.95% for term 80% none
First Direct 0845 610 0100 5.99% for term 90% £399
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T- Operated by Telephone
*W- Operated by Internet
*H- Operated by Internet/Telephone
*S- Available only to those aged 50 or over
*R- Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476476 (All rates subject to change without notice)
