One benefit to Premium Bonds is that your initial investment is very safe. The NS&I is backed by the Treasury. The maximum you can put into Premium bonds is 50,000 pounds, and this entire sum would be guaranteed by the government. [8] X Research source While there is a chance of winning a very large sum, the odds of winning 1 million pounds is 1 in 27 billion per each 1 pound bond. Your odds of winning 25 pounds is 1 in 26 thousand per each 1 pound bond. [9] X Research source So, most people will not win enough to match the current interest rate. On average, you can expect to win what the current established interest rate is (currently 1. 35%). Therefore, it is only worthwhile if you cannot get more from a high interest savings account, or if you are willing to risk a lower return for a small chance of a much higher return.
You can apply online at www. nsandi. com. Fill out the form. You’ll need to answer questions such as how you want your notifications sent to you, as well as whether you want your awards cashed or reinvested as bonds. [13] X Research source
Call 0500 500 000 to buy bonds. [15] X Research source
Any interest, dividends and capital gains are subject to U. S. tax. You should receive either a 1099-DIV or 1099-INT at the end of the year, which will tell you whether or not you paid foreign taxes. If you did pay foreign taxes, you may claim a tax credit or itemized deduction on your tax return. [22] X Research source
The easiest way to set up a British bank account is to contact your bank to see if it has a U. K. branch. Because you already have an account, you may find it easier to convince them to open a British account for you. [26] X Research source
A bond simply refers to a type of investment, where an investor (also known as the bondholder) lends money to a business or government for a set period of time, and receives interest. In lending the money, the lender is purchasing a bond, which is essentially a certificate indicating that the borrowers owes the money back by a set date, and that the lender is entitled to receive interest payments at an agreed upon rate. [34] X Research source Maturity date: Refers to the date the bond matures, or the date that the borrower (also known as the bond issuer), repays the value of the bond to the bondholder. Face value (also known as par value): Refers to the amount paid to the bondholder at the maturity date. If the face value of a bond is $1000, you will receive $1000 at the maturity date. Coupon: A coupon is an annual or semi-annual amount of interest paid on a bond to a bondholder. If a bond pays $50 annually, the coupon would be $50. The coupon may be expressed as a percentage of the face or par value, also known as the coupon rate. For example, you purchased a bond with a face value of $1000, and a coupon of $50. Your coupon rate would be 5%. Coupon dates: The dates throughout the year which the coupon is paid. Current yield: This is a bond’s coupon divided by its current price. For example, A bond that is purchased for $800 with a coupon rate of 5% will have a current yield of 6. 25% ($50/$800).
A previously issued bond with a coupon of 5% would sell at $833. 33 to provide the same current yield as a bond with a coupon value of 6%. ($50/$833. 33 = 6% current yield; $60/$1000 = 6% current yield). Bonds whose market value is less than face value are known as discount bonds. An investor purchasing discount bonds would receive a current yield equal to market rates plus a capital gain at maturity when the bond is redeemed at $1000. A previously issued bond with a coupon of 5% would sell at $1,250 to provide the same current yield as a bond with a coupon value of 4%. ($50/$1250 = 4% current yield; $40/$1000 = 6% current yield). Bonds whose market value is greater than premium value are known as premium bonds or bonds with a premium. An investor purchasing premium bonds would receive a current yield equal to market rates and a capital loss at maturity when the bond is redeemed at $1000. The tax treatments for premium and discount bonds can be complex with some investors amortizing a portion of the expected capital gain or loss each year. For further details, review IRS Publication 550 and see a tax professional for advice.
Premium bonds can provide greater cash flow. The reason the premium exists is because the bond offers higher coupon rates than other bonds with lower coupon rates. While it does cost more at first to purchase a bond at a premium, over the course of the bonds life, the higher costs can be offset by higher cash flows over time. While the excess interest is essentially the return of your own money, the higher cash flows mean that the time it takes to recover your initial investment is lower. This concept is know as duration - the measure of time a bond will take to return the investor’s principal. Premium bonds can provide protection when interest rates rise due to their shorter duration. Remember that when interest rates rise, bond prices fall. Premium bonds, however, generally do not lose as much value when interest rates rise as a bond trading at face value, or at less than face value, (also known as at a discount). If you believe interest rates are rising, buying a bond at a premium could be a smart decision.
If a callable bond interests you, look for callable bonds with “call protection”. These allow you to own the bond for a period of usually several years without needing to worry about the bond being called back, regardless of what happens to interest rates. Ask your broker which bonds have call protection.
