Back in January, we asked ‘Do Premium Bonds make a good gift for children?’ But National Savings and Investments (NS&I) offer other products too.
What are they and should they hold a place in your portfolio?
A brief history of NS&I
First though, a brief history. Established in 1861 and formerly known as the Post Office Savings Bank and National Savings, NS&I currently has 25 million customers and investments worth £167 billion.
By investing in NS&I you are effectively lending money to the government. It is this that accounts for NS&I’s HM Treasury backing and it is this that ensures your money is safe and secure.
The downside to NS&I products is that the rate of interest can be low compared to the alternatives, such as investing in stocks and shares.
This can be an issue if you’re investing for the long term. You could find that your investment loses value in real terms, once inflation is taken into account.
If you’re saving towards a long-term goal, you’ll want your savings to grow faster than the rate of inflation but for secure short-term investment or as a first account for a child, you might find an NS&I product that works for you.
The available products
With a minimum investment of £1 and a maximum of £2 million, the Direct Saver is accessible to everyone. It’s one of NS&I’s most popular products and can be opened by those over the age of 16 with a UK bank account in their name.
Once opened, you have easy access to your savings and can withdraw funds whenever you like, at no cost. You can make withdrawals online or by phone and pay funds in that way too.
The Direct Saver pays interest at a rate of 1% AER variable so you won’t see a massive return on your investment but if you’re looking to hold a large sum of money temporarily, this might be a good option.
With a maximum investment of £2 million – and the Financial Services Compensation Scheme (FSCS) capping cover at £85,000 per provider – the security of this Treasury-backed account is an effective way to ensure your money is safe.
This NS&I cash ISA is open to anyone over the age of 16 and the minimum contribution is just £1. The upper limit for contributions is the annual ISA Allowance – £20,000 for the 2020/21 tax year.
As with any cash ISA, the interest you receive is tax-free. It pays a variable rate of interest and as with the Direct Saver, you have instant access to your funds and no charges for withdrawals.
NS&I Junior ISAs (JISAs) are open to anyone under the age of 18. As with a standard JISA, parents can open the accounts on behalf of their children but once a child reaches age 18 control of the investment reverts to them.
As with its adult alternative, interest is tax-free and the JISA pays a variable interest rate. The minimum contribution is £1 and the maximum – in line with the annual JISA Allowance – is £4,368 for the 2020/21 tax year.
If you’re looking for a product that supplies a regular income, you might consider Income Bonds.
You’ll have easy access to your money with no charges to pay for withdrawals. You’ll need a minimum amount of £500 in order to invest, with a maximum investment amount of £1 million.
If you’re looking for a regular income this could be an excellent choice. Be aware though that an Income Bond might not be for you if you’re looking for guaranteed returns or if you want to see your investment grow.
If you’re not looking to receive a regular income, you might opt for an NS&I Investment Account. You can open an account with just £20. The maximum investment amount is £1 million.
It offers a variable rate of interest and no charges for withdrawals. However, the Investment Account must be managed entirely by post.
Under-16s can have accounts – opened and managed on their behalf by parents or grandparents – so this could be a great way to save for a child. The account is easy to manage and could help to introduce a child to the concept of saving.
If you’re looking for a fixed rate of interest or regular payments on the other hand – or if you prefer to use the internet or phone to manage your finances – this might not be the option for you.
Premium Bonds were launched back in 1956.
For a minimum investment of £25, you’ll be entered into a prize draw once for each £1 bond you own, with the chance to win tax-free prizes, up to £1 million.
Your savings won’t earn interest, so be wary of inflation. You won’t receive a regular income either. But as with all other HM Treasury-backed NS&I products, your money is 100% secure and there’s the added incentive of huge cash prizes.
Get in touch
The security of NS&I products means you know your money is safe. But there are other products out there that offer the chance for greater returns. If you’re saving for the short term, or to provide an account for a child, NS&I products might be a good choice.
If you’re worried about the effects of inflation though – and the possibility that your money might lose value in real terms – you might consider looking elsewhere. We can help you with that.
If you’d like to discuss any NS&I product or a non-NS&I alternative, get in touch. Please email firstname.lastname@example.org or call 0115 933 8433.
The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. The Financial Conduct Authority does not regulate National, Savings & Investment ‘NS&I’ products.