The Pros and Cons of UK Premium Bonds

HM Premium Bonds are a UK investment that is more or less a lottery. You invest a specific number of bonds for £1 each and then a monthly draw is held each month. The only difference is that your original investment is always returned when you close your bold holding.

The maximum you can invest in Premium Bonds is £30,000. As such, there is a reasonable amount of scope for the investment. A £30,000 investment will give you a good chance of winning something each month such as £50 etc. However, you cannot invest any more than this.

One million is the highest potential monthly return from a Premium Bond investment. However, even with a maximum Premium Bond investment it’s unlikely that this will be returned. Although there is a good range of smaller returns that could potentially amount to thousands with a big bond holding. Despite this, there can be no guarantees that a Premium Bond investment will return anything, especially if you have only a small holding. A small holding of a few hundred will not likely return much, if at all. In comparison, interest based saving accounts will provide an annual interest rate return. In this respect, savings accounts may be a better investment option.

However, saving accounts are also limited to their interest rates. With Premium Bonds, there is a chance of greater potential returns. The more you invest the greater this chance is.

Premium Bonds are also tax-free investments. Unlike some saving accounts which have taxable interest, Premium Bonds have no taxable returns.

Premium Bonds are also easy access. While some saving accounts may require that you invest for a specific period with no withdrawals, Premium Bonds are not the same as they do not have a set term. As such, you can hold Premium Bonds for as long as you like, and close the bond holdings when required.

Another advantage of Premium Bonds is that when you close them, the original deposit will be returned. In this respect, they are not like share investments, which can fluctuate. Sometimes those investments can bring losses.

Overall, Premium Bonds are a good investment if you have a larger holding. There are no tax requirements, no set terms, monthly draws for monthly returns, and they also have far greater potential returns than saving accounts. Although there are no guarantees, with a good holding, you can expect reasonable returns on the investment of at least 2 – 3% annually. For further details, the NS&I website is worth noting.