Desperate times call for desperate measures. For Oldsters with savings, earning a decent, or even a reasonable return, or any return at all, can be problematic at the moment. Modification of behaviour is called for. Here’s one small way in which Brits may fruitfully change the sensible investing habit of a lifetime.
Saving gets you nowhere if inflation is allowed to eat away what you accumulate. For the past few years, interest rates have been set at a level that robs savers, and old people especially, of the proper return on their savings. That level may not change soon, we are told.
This column does not offer advice, just experience: in order to boost my returns, I have for the first time systematically invested in a lottery of sorts.
Don’t I know that a lottery is a tax on stupidity? Don’t I know that you stand a much better chance of being struck by lightning, twice, while kissing Julia Roberts in your love nest, than you do of winning a lottery?
I know these things. I didn’t buy lottery tickets. I bought Premium Bonds.
(For non-UK-resident, or possibly non-British readers: you probably can’t buy Premium Savings Bonds. They are an obligation of the British Government. They cost £1 each, and may be cashed in at 30 days’ notice whenever you like. They pay no interest, but each bond is entered into a monthly draw for prize money. The prizes range from £25 to £1 million.)
The draw for the prizes is made by a machine called ERNIE, which is an acronym for Electronic Random Number Indicating Equipment. That may sound clunky, but it’s been music to my ears, since I keep winning prizes.
I haven’t won a lot. My Bonds (there’s a £30,000 limit, but I have far fewer) have consistently paid an average of about 1.5 percent per annum, tax free. That equates to about 2.08 percent gross, at my tax rate. Were I a top-rate taxpayer (hah!), it would equate to about 3.6 percent. My bank is paying much less on deposits of like size.
Of the whole experience, the best part is the almost monthly ritual of the envelopes from Glasgow falling onto the doormat and what follows: the breathless moment when you slit the envelope, pull out the paperwork and pause. For just one sensational moment, you might be holding a million smackers in your hand. Then you flip the advice note to see how generous ERNIE has been. So far, it’s only been £25s and one £50, but that’s better than my bank has been offering.
There you have it. Executive summary: Don’t play the lottery. Do pay attention to market conditions. Consider Premium Bonds for money you don’t need next month or even next year, as part of a sensible overall savings strategy.
I’ll be back next week if the big Scottish feller doesn’t pull the plug. After all, he’s stuck in a tax-free world where he can’t gross up his earnings for tax purposes. Poor him.