Price alerts, news and exclusive offers direct to your inbox
National Savings & Investments (NS&I) is the UK’s second largest savings institution, but why is it so popular? We look at the advantages and disadvantages of investing your cash in its products (Updated 9/9/09).
More than 30 million people save with NS&I. There are a variety of products available, from short term savings to long term investments and you can choose your own level of risk, from guaranteed returns to monthly chances of winning cash prizes.
In this guide we will look at the pros and cons of the products available and investigate whether this really is the best place for your money.
Advertisment| Company | Notes |
|---|
Originally called the ‘Post Office Savings Bank’, NS&I was set up by the government in 1861. The scheme serves two purposes:
Basically, by saving with NS&I you are lending money to the government and in return you are guaranteed that your investment is secure. Anyone can save with NS&I, but there are certain criteria for specific products.
You can apply for NS&I products at a Post Office branch, by post, by phone or online through the National Savings & Investments website (www.nsandi.com)
Standard savings accounts are held with banks and building societies which are private organisations. When you save your money with them, it is usually reinvested to generate profit which is then shared between the organisation’s shareholders (and/or members of the building society).
When you save with NS&I your money is used to finance government spending. You will still receive interest on your savings but unlike standard savings and investments, all money invested in NS&I is completely “capital protected”, which means you can rest assured that you will receive all your original investment back.
NS&I are currently offering a wide range of products, both “easy-access” which let you take your money out whenever you want to and longer term investment schemes, where your money is invested for between one and five years.
Some of NS&I’s products are tax-free which mean you do not have to pay income tax or capital gains tax on any interest prizes you receive. These products include ISAs, premium bonds, savings certificates and children’s bonus bonds.
Other products are taxable which means you must pay interest in full and declare them on your tax return. These include savings accounts, income bonds, guaranteed income bonds, guaranteed growth bonds and guaranteed equity bonds.
Most of the types of products that NS&I offers are available elsewhere, but premium bonds are a unique product, available exclusively from NS&I.
Premium bonds are not an investment, strictly speaking, because instead of paying interest, they offer savers the chance to win a tax-free cash prize each month.
A quarter of all money invested in NS&I goes into premium bonds and around 23 million people now hold premium bonds. You can invest up to £30,000 in bonds and must invest a minimum of £100 at a time.
Each bond costs £1 and each has an equal chance of winning when prizes are allocated. Each month more than a million prizes are paid out ranging from £25 to a jackpot prize of £1million.
The winning bonds are picked each month by a random number generator called “Ernie”. Many see premium bonds as a safe alternative to the National Lottery, because you are only gambling with your interest, not your capital.
The chances of winning are certainly more favourable – the odds of receiving a prize with each single bond in a single month are 36,000 to one.
You can cash in your bonds at any time without penalty and you will get back exactly what you put in. This does mean however that over time the value of your investment will be eroded by inflation.
NS&I is the most secure place to save and invest your money. Because it is backed by HM Treasury it really can guarantee that you get your money back no matter what happens. So, if you are fraught with anxiety about the safety of your cash and if super ultimate security is your biggest concern then NS&I might be for you.
However it must be stressed here that if you save with a bank or building society you are in fact completely covered by the Financial Services Compensation Scheme, which is implemented by the government, for any account up to £50,000. This means that if your bank or building society does go bust, you will get all your money back.
Therefore the levels of risk in saving up to £50,000 in a regular savings account and saving with NS&I are almost identical, and pretty much non-existent. The only difference is, it may take a while to claim back your £50,000 if your bank or building society does do a Northern Rock.
If you don’t mind taking this tiny risk of having to wait for your cash in a worst case scenario then your best option is likely to be investing in a bank or building society and ensuring that you shop around as there are plenty of competitive rates to be found on the market.
Premium bonds may be the exception to this rule - they are a unique product and massively popular. If you want an investment which offers the excitement and the chance of big win with the guarantee of your money back then you might well enjoy holding some bonds. Certainly less risky than frittering your cash away on scratch cards!
Advertisment| Company | Notes |
|---|
Compare the best savings rates, or use our savings calculator.
| Bookmark with: |
|
|
|
|
|
|
|
|
|
|
|
|
![]() |
What's this? |
Comments