How best to invest
What should we do with our nest eggs? Paul Lewis helps you find the top deals
Between us, we have more than £230 billion salted away with National Savings and Investments (NS&I). One of the features people love is that it gives a guarantee that all your money is safe and accessible: there’s no £85,000 limit on the amount that’s protected, as there is with banks and building societies. You can put up to £2 million into some accounts, all covered by that 100% guarantee.
NS&I never offers the best rates for our savings, but it does try to be competitive. Recently they launched four new savings bonds, all paying 4% or a little more (depending on the time you tie up your money for – between one and five years). With the official interest rate, set by the Bank of England, falling and projected to fall further later this year, it’s possible those bonds will be replaced at some point with bonds paying less. But for now, the return is OK, and you – plus your spouse or partner if you have one – can put in between £500 and £1 million each.
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Once committed, you cannot take the money out until the end of the term, and the compound interest paid at that time is taxable in that tax year.
The rates are above the rate of inflation (which was 2.6% in March, though the Bank of England forecasts that will rise to 3.5% by the autumn). But you can do better than NS&I. The best rates for one-year bonds from banks and building societies are more like 4.5% compared with the 4.05% with NS&I. Over longer periods, best buys are around 4.4%. But remember that only the first £85,000 is guaranteed if the bank or building society that has your money goes bust.
Premium bonds that are easy access seem less good value, with a 3.8% rate of return, but the prizes are tax-free. Excluding the bigger prizes (which you will seldom if ever win), the return is a shade above 3%. For higher-rate tax-payers, that’s equivalent to 5.07% taxable – good for those who can afford the maximum £50,000 of bonds and win prizes (almost) every month. More than a million people do, holding half of all premium bonds between them – but even they are unlikely to win a prize above £1,000 in their lifetime. For current best buys, google “the private office cash best buys”.
QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com. I cannot answer you personally, but I will reflect them in this column.