Is it possible to get risk free savings with high rewards?
One often quoted statistic in banking is that people living in the UK are more likely to get divorced than change their bank accounts. There are many people in the UK who have opened a bank account with their local branch, with the bank their parents were with, because they got a free railcard or overdraft for university and many other spurious reasons which have nothing to do with which is the best account for them! The reality is that large numbers of people have subsequently not changed that account since.
This inertia about switching also applied with savings with many simply depositing their savings with the bank that provides their current account, even though opening or switching a savings account can be done without changing your main bank/current account provider. In the current low interest rate environment, many say that rates are so low generally that they can’t see the point in moving because the amount they’d gain in interest isn’t worth the effort, with best buy instant savings accounts paying a top rate of just 1.31%.
Many of the alternatives to cash come with an element of risk to the amount invested or saved, which doesn’t appeal for many savers who choose to save in cash because their money is protected and their balance can’t go down.
So, this month, I decided to look at some options that are risk free but give savers the chance to gain something substantially more than a few extra pounds.
Premium Bonds are one of the nation’s favourite savings products and are operated by National Savings & Investments, who are backed by HM Treasury. Instead of paying a guaranteed rate of interest to each individual holder, a rate of interest is set and paid on balances in to a prize fund which is then paid out in a monthly draw. These prizes are tax free and start with two £1m prizes, four £100,000 prizes then 156 prizes between £5,000 and £50,000 in value. There’s also another 2.85m prizes worth between £25 and £1,000 paid out each month.
The annual prize fund interest rate is 1.40% from this month, which is better than the best buy instant savings rate! Savers can invest between £100 and £50,000 and have a 1 in 24,5000 of winning a prize on each bond.
Someone with average luck should win at least one prize a year with £2,000 invested and once a month with £20,000 saved. Prizes are tax free and your money is fully secure so there’s a lot to like about Premium Bonds. The downside is, if you don’t win a prize then you don’t get any return on your money. Many view Premium Bonds as an alternative to the National Lottery – the chance to win big prizes but without the risk of losing your money.
The Windfall Bond, operated by The Family Building Society, is an innovative account which offers an interest rate of 0.50%, which is the same as the Bank of England Base Rate, as well as chances to win cash prizes each month. The prizes are £50,000, two prizes of £10,000 and ten of £1,000.
Although the prizes aren’t as big as Premium Bonds, the odds are much better with each bond having odds of 64/1 of landing a windfall in the first year. The minimum investment is £10,000, which may put some people off, and there is no limit to how many £10,000 bonds can be bought, although your money is only protected within the FSCS limits of £85,000 per person.
The Windfall Bond will appeal to those who still want to get some return on their money but like the excitement of a chance of winning a much bigger pay out.
Personal 9 Month Lottery Bond
This lottery bond is offered by OakNorth Bank, a new bank launched in 2015, and is a unique combination of a savings account and being part of a lottery syndicate. The minimum deposit is £1,000 and your funds are tied up for 9 months. In return, you will earn 0.70% on your savings and go in to a syndicate which will buy lottery tickets – one per £4,000 invested by the lottery group.
So, if you invest £1,000 alongside others who have put in £4.5m, and the group wins a £5m lottery prize, you will get £1,111.11 of that prize plus your initial investment and interest of 0.70%. The more you invest the greater the proportion of your winnings e.g. £10,000 invested will win £11,111.11 of a £5m lottery win assuming the same pot.
The Lottery Bond pays out a reasonable rate of interest and therefore offers less upside so the chances of winning a big prize sum are limited. Your money is FSCS protected up to the scheme limits and this Bond may appeal to those who like to earn a return with the potential for a nice upside.
Savers Prize Draw
The Savers Prize Draw, offered by Halifax (part of the Lloyds Banking Group) offers a chance to win one of three prizes of £100,000, 100 of £1,000 and 1,500 of £100. It is open to anyone who holds £5,000 or more of savings with Halifax and who registers for the draws – registration is a one off for all future draws.
The draws are at the beginning of each month and you must have held £5,000 for the full previous calendar month. The Prize Draw is more flexible than other products in that you can choose which account to hold your funds in or a variety of different accounts. Accounts included range from the Everyday Saver (0.05%) to a 2 Year Bond (1.65%).
The downside of this product is that it is open to all Halifax savers who hold a qualifying balance and register. As Halifax is part of the largest savings group in the UK, this is likely to be a substantial number! Entry is limited to one per person so you can’t gain more chances by having a higher balance, unlike some of the other options.
Finally, last month’s competition winner was Sarah Shaw from Billericay, who won a £50 restaurant voucher to spend in Felix. Further details will be on our website by the time this goes to print.
I wish you all a Merry Christmas and Happy New Year and will be back in January to look at money ideas for 2018. I will also be on Phoenix FM on Saturday 6th January from 10am – 12noon answering your money queries so tune in on 98.0FM!