Granite guidance

Diamond date, but bonds not a rock-solid investment

Sixty years is a long time in anyone’s book: in that time, there have been 12 British Prime Ministers, five UK Eurovision winners, and there have been 7 actors who have played the role of James Bond. 

And sixty years is how long Premium Bonds have been on sale, with the popular product celebrating its diamond anniversary on 1 November 2016. On that day Frankie Laine - A Woman in Love was top of the UK pop charts and investment choices were somewhat more limited. 

Whilst times have changed Premium Bonds remain incredibly popular with the UK public. There are now more than 21 million customers holding over £63 billion worth of Premium Bonds. Nearly 920,000 customers have more than £30,000 invested in Premium Bonds, with 240,000 of these customers having the maximum £50,000 invested. 

Premiums Bonds are simply a savings account you can put money into and take it out when you want, where the interest paid is decided by a monthly prize draw. You can win between £25 and £1million tax-free or, most likely, nothing. Premium Bonds are backed by HM Treasury which makes them 100% secure, and so the attractions are obvious. 

Despite the attractions are they a sensible investment? The top prize of £1million is available to two lucky recipients in each monthly draw but the odds of one bond winning the million jackpot is more than 31 billion to one. Even the odds of winning a more modest £25 are 30,000 to one. 

From a financial planning perspective, they offer little as no return is guaranteed and the odds of winning the top prize are in line with seeing Elvis stacking shelves at your local supermarket. Retaining a modest holding in premium bonds is no real issue but more substantial funds should be committed to alternative forms of investment where potential real returns may be generated. 

Had you invested £100 in a UK Market Index over the last 60 years’ annual returns of 11.9% could have been achieved meaning that the £100 would have grown to £85,075 ignoring the impact of charges and inflation. Inflation over the same period has been on average 5.4% meaning a very healthy “real” return of over 6% has been achieved. 

Premium Bonds and playing the lottery are extremely unlikely to make you wealthy and are speculative investments unlikely to pay off. Investing does not need to be complicated and most people can have a successful investment experience by adopting a sensible approach by diversifying, controlling costs and taking a long-term view. 

Becoming a millionaire is not impossible but it generally takes time, patience and discipline – not speculation. A financial planner can help assess the level of investment return required from your portfolio to meet your investment objectives and the level of risk required to do so. 

Paul Gibson is Managing Director and Chartered Financial Planner at Granite Financial Planning Ltd in Banchory. He can be contacted on 01224 781280.  


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The general financial planning guidance provided in this website is based on our understanding of current law and HM Revenue & Customs practice, which are subject to change in the future. Whilst every effort is made to ensure the content of this website is correct, it does not constitute personal financial advice and Granite Financial Planning Ltd cannot accept any responsibility for it. There is a risk that investment returns may not achieve the desired result. Investments can go down as well as up. The Financial Ombudsman Service (FOS) is an agency for arbitrating on unresolved complaints between regulated firms and their clients. Full details of the FOS can be found on its website at Cookies are used on this website to record visitor numbers for analytics purposes.