28th May 2014
The new higher premium bond investment limit is likely to appeal to better off investors who have already used their maximum Isa limit says Hargreaves Lansdown.
From Sunday 1 June 2014 the amount you can invest in Premium Bonds will increase to £40,000, up from the current maximum of £30,000.
The number of £1 million prizes will increase from one to two a month from the August draw. A further increase to £50,000 will take place in 2015-16.
Hargreaves says that premiums bonds work best for higher rate taxpayers who have already used their maximum ISA allowance and want a secure home for a proportion of their cash. Even though there are no prize guarantees, when compared with the rates of interest on offer from taxed savings, which frequently fail to even match inflation, the chance of winning a better return in prizes will appeal to many investors, especially that security and relative accessibility make premium bonds an attractive alternative to immediate access deposit accounts.
National Savings and Investments (NS&I) have a net financing target of £13.0 billion in 2014-15 +/- £2 billion of which the new Pensioners Bonds, launching in Jan 2015, are expected to take around £10 billion (no details of the terms for these yet) so that would leave around £3 billion to be raised through Premium Bonds.
Hargreaves Lansdown’s head of financial planning Danny Cox adds: “The increased investment limit is likely to appeal to wealthier pensioner investors, as will the doubling of the £1 million pay-out to two; the Pensioner Bond launching at the beginning of 2015 will have broader appeal and to be relevant to more of the millions of retired investors with only modest sums to invest.”
NS&I says that the total amount invested in Premium Bonds has increased from £19.7 billion in 2003 to £45.7 billion today – an increase of 131%.
Over 21 million people hold Premium Bonds and they continue to remain popular with savers for a variety of reasons: they offer a chance to win tax-free prizes, they can be easily bought and managed online or by phone.
Julian Hynd, retail director, NS&I, says: “Premium Bonds are one of the nation’s favourite ways to save. Raising the maximum amount that can be invested is good news for customers because the more they invest, the greater their chance of winning a tax-free prize. I’m sure many of the 600,000 customers who currently have the maximum holding of £30,000 will want to invest more.
“The way that our customers now manage their money is changing, so for customers who already hold Premium Bonds, they can now buy more by making a transfer from their bank account directly to us, if they wish to do so. Customers can also sign up to have their winnings paid directly into their account – taking away the hassle of a trip to the bank to cash in any winnings.”