Premium bonds have the benefit of offering a tax-free and secure place to deposit savings, but those considering a premium bond should be aware that there is no guarantee of returns on their deposits. As such, even those who deposit the maximum allowance of £50,000 into a premium bond cannot guarantee they will be successful in the monthly prize draw.
For those who want to earn fixed interest on their savings, choosing a fixed rate bond or fixed ISA may be a good option. A fixed rate bond or 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 the term even with interest added. To see the current best rates on offer, visit our fixed rate bond and fixed rate ISA comparison charts.
Those who are prepared to take a risker option, but who do not want to risk losing their initial deposit, could consider a structured deposit account. These accounts offer the security of the initial deposit being protected, but savers take the risk of not earning any interest on their deposits. 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?.
Consumers looking for a long-term investment and who are willing to risk their initial capital, could consider 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 than 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.
