British Expats – please cancel your Premium Bonds now!!
“They are nowhere near as good as they used to be and now that you are an expat, they simply don’t work!”
I know this will be hard to hear for some British Expats living in well-known expat locations such as Dubai or Abu Dhabi, but I can’t keep watching you being treated this way any longer. It’s time to end your love affair with Premium Bonds.
This once beautiful relationship, a way to save tax-free and support the UK government in 100% safety – now needs urgent intervention.
22 million people in the UK have over £79 billion via them. Yes, there’s still a touch of thrill left, you maybe could, just, win a million – but it’s time to lose the emotion.
Apathetic 1% return from December 2020 – but most win far less.
Premium Bonds are a savings account via the UK Government where the interest is based on a monthly prize draw and the annual prize rate is just 1% from December 2020.
Indicating that for every £1,000 invested into Premium Bonds, on average just £10 a year is paid out.
In practice, that’s impossible. The smallest prize is £25.
Even if you line up everyone with £1,000 worth of Premium Bonds in order of their year’s winnings, the person halfway along would have won… not a penny! In fact, you’d need to walk past nearly two-thirds of the line until you hit the first £25 winner.
Premium Bonds are operated by NS&I which is Treasury-owned so your capital is as safe as it gets. Only the “interest” is a gamble (though for almost everyone over the long run your holding will likely shrink with inflation anyway).
Safety used to be an important factor to investors, but these days all UK regulated savings accounts are protected up to £85,000 per person, per institution, by the Financial Services Compensation Scheme – while the maximum you can put in Premium Bonds is £50,000 – so the safety provision isn’t as big as made out.
The odds of winning for each £1 of a premium bond is a staggering 34,000-1.
Beware the of ‘the win’ seduction
I can’t deny it, Premium Bonds do have a certain attraction of the ‘win’.
Many are breathlessly excited when opening their “you’ve won” letters; and indeed the sense of the joy can override logic, with joyous declarations such as “I win £25 every few months – it’s fantastic!”
The genius of Premium Bond marketing is the normal “risk premium” rules are reversed: normally if you take a risk, you expect to earn more. Here people seem to be happy to earn less to gain a gamble.
So Premium Bonds are certainly not as good as they used to be, but ultimately it’s only worth re-allocating your cash on the understanding there’s something better out there…
There is however £61m in unclaimed premium bond prizes, so always check via their website using your premium bondholder number.
Take the time to review your options, add a monthly lottery scratch card to much-needed logic and let the real returns begin.
About Mike Coady
Mike Coady is an expat expert based in Dubai and is on hand to help with all of the above and more.
Mike is an award-winning money coach and industry leader in the financial sector.
Qualified to UK Financial Conduct Authority (FCA) standards, a member of the Chartered Insurance Institute, a Fellow of the Institute of Sales Management (FISM), a Fellow of the Association of Professional Sales (F.APS), a Fellow of the Institute of Directors (FIoD) and featured as a highly qualified Financial Adviser in Which Financial Adviser.
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Blog published by Mike Coady.