IT COULD BE YOU… BUT ITS UNLIKELY

TODAY’S BLOG

IT COULD BE YOU… BUT ITS UNLIKELY

If you have been a client for more than a week, you will have gathered that I like, want and encourage clients to hold some cash. The key word is some. This will be different for everyone and depend on several things. Your planned projects over the next 36 months and the emergency buffer you believe is appropriate should your employed (or self-employed) income cease. If you draw a pension from an annuity, the State or an old final salary pension, those are guaranteed and won’t stop until you do.

10 YEARS ON

Cash rates as we all know have been very low for a decade or so now. Holding cash in a world of rising costs over the “long-term” isn’t good for your wealth. By way of comparison 10 years ago a first-class stamp was 46p, today it is 85p…. ah you sensibly plan ahead and use second class, 36p has become 66p.

If I am generous about cash deposit rates, using a Cash ISA rate, a typical “decent” rate in 2011 was 2.75% today its about 0.4%. Remember, costs have gone up, the interest you have been getting has reduced. Holding cash for 10 years… that warrants a discussion, but let’s just assume it’s the same emergency “help me sleep at night” reserve. In June 2011 the rate of inflation in the UK was 4.2% today (data from May 2021) it’s around 2.1% and you will have likely heard some noise about it rising having jumped from 0.5% in February.

FEAR IS EATING YOUR WEALTH

There is no way that I would attempt to encourage you to place all of your money into investments, but unless you are preparing for Armageddon, I cannot see much logic in holding large sums. We can help get better rates for those with sums over £100,000 but its still peanuts, even using a decent cash management platform.

PREMIUM BONDS

Some of you like NS&I Premium Bonds. They are a bit of fun, the Government’s way of raising money without raising taxes, borrowing from taxpayers. Whilst NS&I are not backed by the FSCS cover of £85,000, they are backed by HM Treasury, so… pretty safe. Premium Bonds are really a lottery without loss of your stake money. The chance of your Bond winning even the smallest prize is now 34,500:1…. Rather less than your chance of contracting covid or going on holiday. So to have a reasonable chance you need at least £34,500 in Premium Bonds and preferably £50,000 (the maximum).

We are a small firm, so the sample size may not be terribly helpful, but in the 30 years or so (over 360 draws) that I have been doing this, not a single client has won more than £1,000 from a single Premium Bond. None of our clients have won prizes in the high value band (£5,000 to the two £1m jackpots each month).

I do understand that there is a charm about Premium Bonds, but the maths just doesn’t stack up for you. There are 25million NS&I customers – that’s getting towards half of the UK. The draw for June saw the usual 2 jackpot winners and a further 190 people that won £5,000 or more. The bulk of “winners” some 3,101,040 of them won £25 (97.89% of winners win £25). The total winnings (all prizes) was £91m.. which sounds a lot until you realise that £77.5m is those £25 payments. There were, wait for it.. 109,286million entries (qualifying £1 Premium Bonds). The chance of winning anything is certainly 3.1m in 109,286 million… that is a very small chance of winning. Most think of the big £1m jackpot, the chance in June was effectively 1 in 54,643,229,674, yes you get a bite at the same pie each month, but so does everyone else. So to put this in context you are 1 in 67,081,000 as a member of the UK population and you might be picked for a gong or almost anything.

The other thing that people forget is that £1m, which for most of us would be nice to have! isn’t the same value as £1m in 2011. It buys you rather less because of the decade of inflation, yet the prizes don’t really increase, because they are nice, neat, round numbers. Its a bit like the TV gameshow “Who Wants To Be A Millionnaire?” which first aired on 4 September 1998… thats now nearly 23 years ago! A million isn’t what it was, yet all of us were brought up to believe that it was a vast sum of money, which when we were children, it was. In fact £1m in 1998 is about the same as £1,840,000 now, but that doesn’t make a good strap-line for a TV show does it. To put it another way £543,478 now (roughly) was £1m in 1998.

The truth (remember I promised you that) however uncomfortable it is, is that holding cash will provide the sense of security but you will experience your spending power reduce each year. Admittedly not all the things we buy rise at the rate of Royal Mail, but have your basic costs really reduced or stood still? I suspect not.

You need to use your money in assets that grow and generate wealth. Talk to me.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

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PRIVACY POLICY | DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

IT COULD BE YOU… BUT ITS UNLIKELYDominic2023-12-01T12:13:06+00:00

ITS IN YOUR INTEREST

TODAY’S BLOG

IT IS IN YOUR INTEREST

You may have noticed a press release by National Savings or more accurately, NS&I – of for most of us “the post office”. Sadly, we all know that cash savings rates have been in the doldrums since the financial crash and took yet another nosedive (who would have thought it possible?) in March once Covid became something that the Government actively noticed.

Over the last few months, I have been suggesting various cash deposit solutions and NS&I has been one of them. Now that rates are at rock bottom (hopefully they cannot get worse) it is a good time to review where your cash is and what rate you are receiving.

MORE HIGHLY RATED

As you may have gathered from previous posts, we can provide access to online cash management solutions, these are designed to achieve two things. Firstly, to get a better rate, secondly to keep funds within the £85,000 FSCS protection limit. An additional benefit is that you only need to apply once, as rates come to an end you simply reselect the best from those available via the service. There is no additional paperwork or hassle trawling to find the new “best buy” only to discover it has ended or is about to.

Get in touch if you wish to know more about this, it is a service relevant to individuals, business owners, Trusts and Charities (so pretty much everyone).

Anyway, here are the changes announced by NS&I this week.

PRODUCT	RATE NOW	RATE FROM 24/11/2020
Direct Saver	1.00%	0.15%
Investment Account	0.80%	0.01%
Income Bonds	1.15%	0.01%
Direct Cash ISA	0.90%	0.10%
Junior ISA	3.25%	1.50%

Dominic Thomas
Solomons IFA

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk
Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

Email – info@solomonsifa.co.uk Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

Take Survey

PRIVACY POLICY | DATA PROTECTION

ITS IN YOUR INTERESTDominic2023-12-01T12:13:12+00:00

If you are 68 or older – The Pensioner Bond

Solomons-financial-advisor-wimbledon-blogger

The Pensioner Bond

You might remember that when he was Chancellor, George Osborne announced the Pensioner Bond in December 2014 as a way of trying to offer some comfort to savers who were experiencing very low rates of interest on their savings. You may recall that the two new Bonds were to be made available from January 2015 to those aged 65 or over and hence called “Pensioner Bonds”.

Over £1bn was squirrelled away by savers, earning interest of up to 4% over 3 years. On Monday the 3-year bond, officially matures. NS&I will write to all those with holdings, offering the Guaranteed Growth Bond which currently pays 2.2%, which is clearly below the rate of inflation. The account also ties the savings up for another 3 years or suffer 90 days lost interest penalty (about 0.55%) if withdrawn early.

Not as good, but still better

Those that used the full £10,000 allowance will have about £11,300 to re-invest from Monday. Clearly the fact that the rate is lower than inflation makes it a poor choice as a long-term strategy, however if it is simply a cash buffer, it is hard to beat even 2.2% over 3 years in a very low risk cash account. By comparison you would need to consider a 3-year Fixed Rate Bond that pays interest at maturity. Whilst a couple of Banks come close to 2.2% most are generally much lower, even the 5-year Bonds are generally paying less or only a fraction more.

So, if you can accept the below inflation rate and a tie-in for 3 years, then the offer from NS&I looks attractive. Be warned, (£1bn attracts all sorts of scams and misleading products) there will likely be lots of adverts in the press or online or directly into your inbox, promising something much higher, but it certainly will not be on a like for like basis and highly likely to carry additional risk, which you would need to fully understand; and if you can live with the higher risk, it would rather beg the question, why not simply use a regular investment? One that we can implement, manage and monitor for you.

A bit extra

Important point – The NS&I Guaranteed Bond normally has a maximum of £3000, if you hold the Pensioner Bond you will be able to roll over all the proceeds from your existing Bond, which as stated earlier could be as much as £11,300. If this is your intention, you don’t need to do anything at all, NS&I will automatically do this unless you tell them otherwise.

Here is a link (yes click this sentence) to the document that NS&I will be mailing to you.

Dominic Thomas
Solomons IFA

Email me to get in touch

If you are 68 or older – The Pensioner BondDominic2023-12-01T12:18:19+00:00

NS&I Pensioner Bonds

Her Majesty’s Treasury announced the new rates for the NS&I Pensioner Bonds last week. These look incredibly competitive for fixed interest rate cash deposits (bonds). These will be offered in the new year at some point in January. There will be a 1 year fixed rate of 2.80% and a 3 year rate of 4.00%. There is a maximum investment of £10,000 into each. You can have both (£20,000 in total). The interest will be added at each anniversary.

The World Is Not Enough… well £20,000 isn’t

When comparing Bond rates for cash against market equivalents, they are incredibly good – but clearly restricted to a maximum holding of £20,000 per person, I expect that there will be a high demand and as a result the offer could be withdrawn fairly quickly. Blink and you may miss it.

If you would like more information about this please consider the NS&I website. Remember that this is for cash balances that you can afford to lock away for 12-36 months. If you expect to have this money longer than that, then please consider proper investment advice as despite the fact that these rates are “good by comparison” they would be an unwise use of your money as a long-term investment plan (5 years or more). Cash is for your emergency safety net and planned expenses in the 0-48 month window.

Pensioner Bond

The “Pensioner Bond” is only available to those aged 65 or over… which if you are interested would enable 4 of the living 6 actors that played James Bond, 007 to apply.

Timothy Dalton (70); George Lazenby (75); Sean Connery (84), Roger Moore (87). The current James Bond Daniel Craig is 46 and his predecessor Pierce Brosnan is currently 61. The other Bond story is that the new 007 film “Spectre” is scheduled for release in November 2015.

Dominic Thomas

NS&I Pensioner BondsDominic2025-01-27T16:53:09+00:00

Cash Deposits – in defence of Premium Bonds

We all know that interest rates are depressingly low for savers (though good news for borrowers). There has been some coverage of National Savings Premium Bonds which has been rather unfavourable, so I thought that I would provide my thoughts on this.

As with all cash deposits, cash as a long-term investment strategy is not a good idea. Why? simply because of inflation. If interest rates are 2% and inflation is 3% then in real terms you are losing money each year, by losing I mean your £1 has less purchase power. So can we agree that cash holdings are for emergency funds, for people that are very anxious about other forms of investing and for planned major expenses. There are no rules or rights or wrongs, but holding cash is sensible for anyone, as it provides liquidity (rather than having to borrow or sell assets).

Turning to Premium Bonds. These are very basic, you buy each bond for £1. You can hold up to 30,000 so £30,000. You are not guaranteed any interest – indeed there is no interest at all. However, your £1 bond with its unique number is automatically entered into a draw. Each month someone wins £1m. Most don’t win at all, but in general those with the full £30,000 allowance tend to win small prizes, which over the year amount to about £450 (1.50% of £30,000). This money is tax free. So for a 20% taxpayer is equivalent to 1.875% gross and a 40% taxpayer equivalent to 2.50% gross. These rates are best compared against monthly interest paying accounts with 30 day notice. You will find very few accounts paying these sorts of rates. Sure a little bit more in a few instances, but not much. Given that we are talking about £30,000 an extra 0.5% is worth £150 over a year… not a significant sum when you consider that it would be taxable, involve the hassle of opening a new account and removes you from the possibility of winning £1m. I might add, that it is also a bit of fun, opening an envelope to discover your winnings. More fun than opening a bank statement, or indeed one of our portfolio valuations (unless you find particular joy in this exercise). Last month someone won £1m, 5 people won £100,000, 9 won £50,000, 18 won £25,000, 48 won £10,000 and 93 won £5,000. The smallest prize (£25) was paid out to nearly1.8m people in June alone.

The news is that the chances of “winning” (from £25) will reduce from 24,000:1 to 26,000:1 on August 1st 2013. As a result the current appropriate 1.5% rate is now more like 1.30%. So on £30,000 you might expect £390 of tax free winnings over a year. To a basic rate (20%) taxpayer this is equivalent to 1.625% and a 40% taxpayer equivalent to 2.16%. These are still decent rates. Sure nothing to write home about, but pretty competitive never-the-less.

Yes the rates are poor, but then that’s true of all similar types of accounts. As I have said cash is not a long-term investment strategy, it is a helpful emergency reserve and buffer. Whatever the economic climate, holding some cash would be entirely sensible. The question is really about having a properly thought through investment strategy that enables you to achieve your goals.

So please remember, this is not advice to rush out and buy premium bonds. This is my opinion in response to some negative coverage about them.Unlike the lottery you get your money back, the same money is re-entered into the draw each month. For the record, none of our clients have yet won the £1m jackpot and I would not advise anyone to rely on winning a jackpot as an appropriate form of providing for your future…that’s just wishful thinking.

Dominic Thomas: Solomons IFA

Cash Deposits – in defence of Premium BondsDominic2025-02-04T16:00:42+00:00