Should I invest a cash prize in Premium Bonds?
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I have had a number of Premium Bonds for several years. This month I have been fortunate enough to win a much bigger prize of £50,000. I would like to use it to help my grandchildren get through university in a few years. I don’t want to take any risks such as with stocks and shares. Should I put the money back into Premium Bonds or into my bank?
Phil Beck of Smith & Pinching responds:
Congratulations on your win! There are a number of different ways you can use the money to keep it safe and potentially grow between now and when you want to withdraw it. However, there are also rules that may limit what you can do.
Premium Bonds are indeed a safe place to put your money, but individuals are only allowed to hold a total of £50,000. A large number of Premium Bonds should mean that you receive prizes on a regular basis but, as you will know, this isn’t guaranteed.
Bank and building society savings accounts – including Cash ISAs – provide interest on your money. Sadly, interest rates are low at the moment, so the gains you make will be minimal, but they will be guaranteed. You may get better rates if you are prepared to tie up your money for a minimum period.
ISAs are particularly tax-efficient, but there is a limit to how much you can save in an ISA each year. The current limit is £20,000, so you wouldn’t be able to put your whole win into an ISA framework all at once.
It’s important to remember that interest rates on savings accounts are currently less than the rate of inflation, so your money may lose value in real terms over time using this route. I appreciate your nervousness about the risks of equity investments but it is possible to hold a portfolio of investments with very little risk, although there will always be some risk involved.
You may find it useful to have a discussion with an independent financial adviser in order to get your money to work for you in the time between now and when you want to help your grandchildren. An adviser will look at your circumstances, your attitude to risk and your goals to help you select a mix of savings and investments that are right for you.
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Any opinions expressed in this article do not constitute advice. The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
For more information, please visit www.smith-pinching.co.uk