Premium Bond investment limit increased to £50,000 - Savings - News - Moneyfacts

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Premium Bond investment limit increased to £50,000

Premium Bond investment limit increased to £50,000

Category: Savings

Updated: 03/06/2015
First Published: 02/06/2015

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Do you have Premium Bonds? Are you thinking of increasing your investment, or even considering buying for the first time? Well, you're in luck, because those with larger savings pots can now safely invest more money in return for the chance to win tax-free prizes, as the investment limit has just been increased!

Savings boost

Yesterday, Monday 1 June, saw the maximum investment allowance for NS&I's Premium Bonds increase to an impressive £50,000, up from the previous limit of £40,000 – meaning you've got the chance to squirrel away an extra £10,000 into these much-loved savings vehicles. The move comes a mere 12 months after the previous limit was raised from £30,000 to £40,000, and follows the introduction in August 2014 of a second monthly £1 million prize, offering even more opportunities to win.

Changes to the way that parents or guardians can buy Premium Bonds for their children were also introduced yesterday, allowing them to apply online or by phone for the first time. Previously, it was only possible to purchase bonds for those aged under-16 by post or at a Post Office counter, so this will be welcome news to parents who want a more direct route.

By all accounts, the changes could lead to a surge in the amount of money held in these bonds: the total investment value has already increased by £6 billion since last June, when the last allowance increase took place, and NS&I expect that the total amount will rise again following the latest change. Overall, the total amount invested has risen by a whopping 169% in the last 12 years, up from £19.7 billion in 2003 (when the previous £20,000 limit was increased to £30,000) to over £53 billion today.

Jane Platt, NS&I's chief executive, commented: "Premium Bonds are one of the nation's favourite ways to save. Last year we saw a huge level of interest when we raised the limit from £30,000 to £40,000, and this latest increase to £50,000 is further good news for customers who want to save more and give themselves extra chances to win a tax-free prize."

Time to get in on the action?

These accounts certainly are popular, but before you take the plunge, there are a few things you need to know. First of all, these bonds don't pay any interest. Instead, each month your individual £1 bond numbers are entered into a prize draw for the chance to win tax-free prizes. These range from £25 to the jackpot of £1 million with over 2 million prizes being won every month, and according to NS&I's website, the annual prize fund interest rate stands at 1.35%.

This means that, even though you're not technically earning interest, the chance to win tax-free cash could make these bonds a viable possibility for some savers. This is further compounded by the fact that average savings rates are so low – despite recent signs of improvement – so for many people, the gains of leaving money in a traditional savings account may not be much better. Then there's the security – because NS&I is backed by the Treasury, investors have 100% capital security.

However, it's important to remember that returns aren't guaranteed. The odds of an individual bond winning a prize is 26,000 to 1, and if you don't win anything over a prolonged period of time, you could see the value of your savings eroded. Thanks to inflation being negative it may not be much of a concern at present, but it will be when inflation starts to rise, and if you're not regularly winning prizes, it could eat into the value of your savings.

Really, it all comes down to your own personal decision. It's a toss up between wanting guaranteed interest payments with a traditional savings account and the possibility of securing even higher returns through Premium Bonds – the choice is yours!

What next?

Not sure about Premium Bonds? Check out our savings best buys for guaranteed returns

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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