Martin Lewis discusses Premium Bonds
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The NS&I offering provides Britons with a chance to win £1million each month, but with the odds of clinching the top prize slim, and inflation continuing to soar, many are becoming disillusioned. Express.co.uk spoke to Rachel Winter, partner at Killik and Co., who examined the place of Premium Bonds for diligent savers.
She said: “There remains a draw towards Premium Bonds. They’re very safe because they’re backed by the Government, and people also like the excitement factor of the fact they might win £1million, even though that’s unlikely.
“While Premium Bonds aren’t a bad place to have your rainy day savings, they do not have as solid interest rates as some of the offerings on the market.
“But for a longer term investment, if you do want something with minimal risk, you’ll get a better return with a cash savings account.
“This is particularly the case for people who are willing to lock up their money for a year.”
Ms Winter urged people to think about the money they would spend in six months, and then endeavour to put this aside.
This would serve as a rainy day fund to help with emergencies should they arise, offering a welcome safety net in the current crisis.
The expert added: “I wouldn’t want to have all of my funds in Premium Bonds, as I’d want to be able to get to them on the same day.
“But some of the money could be in Premium Bonds if a person still wants the slim chance of winning.
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“I think Premium Bonds are still fit for purpose and have a place, but people probably have too much in them.
“If you’re just getting 2.2 percent on those, there are a lot of things which could be getting you a better rate without taking a huge extra risk.”
Express.co.uk also spoke to James Norton, head of financial planners at Vanguard, about alternatives for those who wish to move away from Premium Bonds.
He highlighted a Stocks and Shares ISA as a potentially suitable option for those hoping to get a solid return.
Mr Norton explained: “Deciding whether to save into a Stocks and Shares ISA over other investment vehicles, or even cash, ultimately depends on your goal, how long you are investing for, and how much risk you are prepared to take.
“Everyone should hold some cash to cover emergencies – we generally suggest around three months expenditure, but once you have that buffer in place thinking about investing is sensible.
“While cash may appear risk free, it is steadily being eroded by inflation. Therefore, cash savings are not without their risk either!”
The expert also offered a series of tips to help those who are embarking upon this journey for the first time.
Firstly, he said, it is vital to keep costs as low as possible, given that the higher the fees the lower the likely return.
Next, Mr Norton added: “Choose funds that are aligned to your long-term objectives and then sit back and try to tune out market noise.
“Clear goals can help you stay focused, especially when markets are temporarily in turmoil, but a solid plan and a low-cost, well-balanced portfolio can only achieve their potential if you stick with them.”
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Staying balanced is also considered to be an important objective, as while the prices of shares and bonds fluctuate, more risk typically comes with greater return opportunities.
Shares have higher return opportunities and higher risks, while bonds have lower return opportunities and lower risk.
Finally, Mr Norton said a well-diversified portfolio is key, and added: “This has been an unpredictable year that has highlighted value of not putting all your eggs in one basket.
“Spread your investments and you won’t be so vulnerable to any one asset class losing money.”
Of course, it is vital to note investment is not suitable for everyone and it is important to do one’s research before embarking upon this journey.
Capital is at risk, and people could get less back than they originally put in.
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