Premium Bonds, Property or Pension?: What is the smart investment choice?

Are you thinking about investing in your future, but not sure where to start? 

The best time to start investing in your future was yesterday. The second best time is today. As costs spiral ever higher, you might be focusing only on the here and now, which is understandable. But if you are thinking about investments for the future, you may be wondering where to put your money.

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So we’re here to break down your options.

Buying Premium Bonds

Premium bonds are an investment from National Savings and Investment (NS&I) where you are entered into a monthly prize draw where you could win anything from £25 to £1million (tax free!). Traditional investments, on the other hand, earn interest or a regular dividend income.

It’s a little like playing the lottery in that you could win a life-changing amount of money, but you still have access to the money you’ve invested (unlike with the lottery). NS&I is also government-owned, so your investments are backed by the Treasury. Which guarantees that your money is safe as houses!

Another bonus of premium bonds is that they are tax-free, but this is only really an advantage if you are in a high tax bracket. 

Your personal savings allowance (PSA) is the tax-free allowance on your savings – essentially, how much interest you can earn on your savings before you start paying tax. Most people can earn up to around £1,000 in interest before they are taxed. 

Bonds are at their best if you have a large sum of money in them – the larger the sum, the more likely you are to win! As all of your winnings are tax free, if you pay tax on your interest, it’s worth calculating how much tax you’re paying and working out if premium bonds are a better investment option. If tax is something you’d like more about, be sure to check out our tax webinars.

However, don’t forget, you can only save up to £50,000 in premium bonds.

Premium Bonds Pros and Cons



Your money is pretty easily accessible

There might be a delay in access around the draw date

Risk free investment. As NS&I is government-owned, it won’t go bust

Your chances of winning big (or winning anything at all!) are quite low

You could win big! 

You won’t make any interest - so if you don’t win, you don’t make anything

Investing in your pension pot

If you’re looking to the future, it’s likely you’re already thinking about your pension. But have you started saving yet? As a general rule of thumb, halve the age you started your pension and this is the percentage you should be putting into your pension. So if you started your pension at 30, you should put 15% of your pre-tax salary into your pension. 

There’s a reason that pensions are the go-to when it comes to retirement planning, as you can benefit from top-ups from your employer.

However, many people are so focused on buying their first home that they put off pension planning until later and, as you can see, the later you leave it, the more you have to put into it. As the average age of first-time-buyers goes up, this can quickly feel like too much to invest out of your salary.

Pension Pros and Cons



Tax relief on your contributions - your salary is taxed after your pension has been subtracted

You can’t access your pension until you are at least 55, so it’s not something you can use in case of emergency

Compound interest means you’ll make a return on your returns

Possible poor returns, as your pension is invested in stocks and shares so there is a risk involved

Employer contributions help top up what you’re saving

Managing your various pensions can be tricky if you’ve had multiple jobs

Guaranteed income, whether you decide to buy an annuity (which will provide you with regular income) or keep your pension invested (as it may continue to grow)

Making decisions about what to do when claiming your pension can feel overwhelming and complicated

Putting your money into property 

While there are other things you can invest in, property is a tried and true investment because while there is no sure thing when it comes to investing, property pretty reliably accrues in value.

If you invest in property you have two options ahead of you:

  • Use the rent. You could decide to remain a landlord post-retirement and use the monthly rent to boost your pension
  • Sell up. You could decide to sell up your property portfolio once you retire and put the bulk amount into your pension fund

If you decide to invest in a Buy-to-Let, you will be taking a much more active role in your investment than you would in your pension or premium bonds. You’ll need to:

Property Investment Pros and Cons



Your property is likely to accrue in value

You can’t access the full value quickly - you’ll need to sell up, which takes time

You can either take a regular income from the rent or sell up for a lump sum later

You will need to manage the BTL, so you will need to be hands on

You can release equity from your investment property to invest in more properties

The more properties you have, the more time you will have to spend on management

You can build your own independent business alongside your day job

You may encounter void periods that you will need to manage

What you do is up to you, but before making a decision, do your sums and your research! 

As with all investments, even the most stable option can go down as well as up. We urge you to take your time before you choose to invest and consult with experts wherever necessary. 

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Mashroom is an appointed representative of Adelphi Insurance Brokers Ltd. Adelphi Insurance Brokers Ltd is authorised and regulated by the Financial Conduct Authority (FCA). Their Financial Services Register number is 594620, with permitted business activities being introducing, advising, arranging, dealing as agent, assisting in the administration and performance of general insurance contracts and credit broking in relation to insurance instalment facilities. You may check this on the Financial Services Register by visiting the FCA’s website, or by contacting the FCA on 0800 111 6768