A guide to NS&I in 2021
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincoln or other local offices.
National Savings and Investments (NS&I) is a government-run investment scheme where you have the chance to win a huge “prize” by buying income bonds – similar to a lottery. The NS&I offers a wide range of financial products which can, in some cases, offer a good alternative to simply storing your savings in a regular savings account.
Below, our financial planning team at Castlegate here in Lincolnshire offers a short guide to how the NS&I scheme works in 2021. We hope you find this content helpful. If you would like to discuss any of these matters or discuss your own financial plan with us please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
What is NS&I?
In simple terms, when you save or invest into the NS&I scheme (by buying one of the products) you are “lending money” to the government. The products include the following:
Guaranteed Equity Bonds
Guaranteed Growth Bonds
Guaranteed Income Bonds
Fixed Interest or Index-Linked Savings Certificates
Some of the products offer a return by paying you interest, tax-free prizes or stock market or inflation-linked returns (income). Unless there is a penalty (e.g. due to early encashment) your money is guaranteed by the government – since it is backed by HM Treasury – and regarded as extremely safe. Some products will pay you an income or capital gain free from income tax and capital gains tax (CGT), such as cash ISAs and Premium Bonds.
Is NS&I a good investment?
Each NS&I product varies, depending on your criteria and financial goals. The easy-access NS&I Direct Saver, for instance, offers 0.15% AER and you can save up to £2m into it. However, any interest you make is taxable – making it inferior to a Cash ISA (which is not taxable) – and the AER is currently much lower than many high street account rates and also inflation (forecast at 1.7% in 2021).
NS&I Guaranteed Growth bonds work differently. They pay out an income directly to your bank account annually on the date you take out the bond and require a minimum £500 initial deposit (you can hold up to £10,000). The AER varies depending on the bond duration. For a 1-year term it is 0.10% and for a 5-year term it is 0.55%. Again, this still fails to beat inflation and fares poorly compared to fixed-rate accounts by high street banks, which can offer AER of over 1% for a shorter fixed-term (e.g. 12 months).
Perhaps the most compelling product is the NS&I Premium Bonds scheme. This works on a “prize draw” system, where you can buy as little as £25 in Premium Bonds and have a chance of winning a lump sum. Each £1 of Premium Bonds has an equal chance of winning, so the more you buy the higher your chances will be. The money does not earn any interest.
Are NS&I Premium Bonds worth it?
Between the February and March draws a record £2.16bn more was invested by British savers into NS&I Premium Bonds, as people sought higher returns than the interest rates offered by most banks. The catch is that you have no guarantee of winning a prize from the draw, even if you own the maximum amount allowed (£50,000). In the March 2021 draw, for instance, only 3.02mn bonds won a prize (out of 104.2 bn!) – and 98% of these were worth £25. The potential reward, however, is significant. Two prizes each month are each worth £1m.
Generally speaking, assuming average luck, you are likely to beat rates on most easy-access savings accounts in 2021 if you have a significant amount invested. One study shows that in 2021 you are 29% more likely to be better off with £1,000 invested, but your chances rise to 82% if you invest £5,000. At £30,000 the likelihood rises to 95% – going up to 98% at £50,000.
In light of this, the attractiveness of NS&I Premium Bonds will depend on at least two things. Firstly, your risk appetite. Would you rather have a guaranteed – but lower – interest payment by putting cash into a regular bank account, or take a chance on getting a better return? Secondly, your investment strategy and goals matter a lot. For instance, if your goal is to grow your wealth as much as possible over the next 30 years, then committing most of your savings to the NS&I Premium Bond scheme may not be the best choice. Better returns can be achieved elsewhere such as in the equity markets, where your investments will go up and down but are likely to increase in value over the entire investment period. On the other hand, if your primary goal is to preserve your hard-earned wealth and pursue a very “low risk” investment strategy, then NS&I Premium Bonds can be an attractive option.
If you are interested in discussing your own financial plan or protection strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585