With the continuous increase in the cost of raw materials for the past three years and with the consequent increase in the cost of electricity and gas bills throughout Europe, it could be particularly useful to start thinking about alternative saving methods that can best safeguard what has been laboriously put aside in the course of our work.
In UK there are a lot of ways to save money. Anyway, a solution to be able to diversify one’s financial investment habits in this sense could therefore be the premium bonds issued by the British government. To this end, it may therefore be useful to understand what exactly it is and how these impact on the taxpayers’ savings system.
What are Premium Bonds?
According with the NS&I website, premium bonds are a way to save, with the chance to win tax-free prizes each month. A premium bond, overall, is a bond that costs more than the standard face amount on the bond – this one could be traded at a premium because its interest rate is higher than current market rates. For example, a bond issued at a face value of £1,000 could get a premium of £50 or be traded at £1,050.
One of the characteristics of this type of bond lies in the possibility of retrading on the secondary market waiting for their maturity. This, of course, will allow any investor not to be strictly bound to a specific time frame. In the case of the United Kingdom, a premium bond follows a National lottery bond established in 1956 by the British government’s National Savings and Investment Scheme.
Ways to buy a Premium Bond
There are three ways to buy premium bonds: online, by phone or directly by mail. These different types differ from each other because buying Premium Bonds online means using a de facto secure system; whereas, to do this over the phone involves having to share the details of the debit card or credit card you intend to use.
However, it is not possible to buy a premium bond over the phone if you buy it for someone else, for example as a housewarming gifts, one of the practices that is taking place in the UK. The purchase by mail consists instead of simply filling out a sending form with a check made out to NS&I.
According with British who prefer this plan, premium bonds fit with their needs for those who are looking for a winning tax-free prize, up to £1 million, or those who have £25 or more to save in a different solution.
How do they work?
As mentioned, the British government has created a Health lottery available to investors. In fact, each pound actually wagered in this lottery guarantees a proportional chance of winning monthly with a prize pool that starts from one million pounds to reach 25 million. According to information released by NS&I, the odds of winning are 24,000 to 1 for each bond with an annual interest rate of 2.20%.
In fact, the only substantial difference between a Premium Bond and a normal bond lies in the possibility of access to this sort of British state lottery that annually gives totally tax-free prizes. A way to actually stimulate investors to circulate their savings with the aim of increasing them and having a constant flow of pounds circulating both on the stock exchange and on the market.