Although premium bonds have the advantage of offering a tax-free and secure place to deposit savings, it has the disadvantage of not guaranteeing any return on investment. This means that even those with the maximum premium bond investment of £50,000 cannot guarantee that they will win in the monthly prize draws. As such, those looking for a return on their investment may consider alternative options.
For those who want to earn interest on their savings choosing a fixed rate bond or a fixed ISA may be the best option. A fixed rate bond and ISA will guarantee a rate of interest for the fixed term of the account, with fixed rate ISAs having the additional benefit of offering a tax-free savings account up to a maximum of £20,000 for the 2020/21 tax year. While fixed rate savings accounts and ISAs offer a guaranteed rate of interest, savers should be aware that interest rates are low at the moment and, as a result, if inflation increases it may erode savings over even with interest added. To see the current best rates on offer visit our fixed rate bond and fixed rate ISA comparison charts.
Consumers willing to take a risker option which could result in greater returns on investments, could consider a structured deposit account. Although these accounts do not risk the initial capital invested, they do have the risk of not generating any interest on the initial deposit. A structured deposit will have a fixed term and the level (if any) interest gained will depend on the performance of a stock market index, such as the FTSE 100. For more information about structured deposits read our guide What is a structured deposit product?.
For those willing to risk their initial capital, another option is investing in a stocks and shares ISA. A stocks and shares ISA is tax-free up to an investment of £20,000 for the 2020/21 tax year and money is invested in stocks and shares (bear in mind that the annual £20,000 ISA limit applies across both cash ISAs and stocks and shares ISA combined). Whether a return is generated depends on how the investor’s stocks and shares perform, with the possibility of earning much greater returns that with savings accounts, cash ISAs, and structured deposit accounts, but those considering this option should be aware that they can also result in not generating any returns at all and they could even end up losing their initial deposit. Those considering a stocks and shares ISA can read more about this type of investment on our stocks and shares ISA page.
