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About Premium Bonds

Premium Bonds Q&A

A potential value that many investors may want to consider

What is a Premium Bond?

A premium bond is one that is priced higher than its issuing price (par), which is typically $1,000.

Why should I invest in a Premium Bond?

Premium bonds deliver a potential value that many investors may want to consider. Premium Bonds can generally be purchased at higher yields than bonds trading at par as an incentive to you, the investor, for paying the premium up-front. As a result, current yield and yield to maturity (YTM) are frequently higher on premium bonds. So while it is true that premium bond buyers will receive less at maturity than their purchase price, they will also receive higher coupon payments over the life of the bond.

Did you know that Premium Bonds are often bargains in the municipal marketplace?

Perhaps, like some investors, you are reluctant to pay more for a bond now than you can expect to receive when it matures. This is especially troublesome for some investors, because the difference between the purchase price and interest income over the life of the bond cannot be considered a loss for tax purposes.

Can a Premium Bond be a valuable addition to a fixed-income portfolio?

Yes! The example below shows why premium bonds can be a valuable addition to your fixed-income portfolio. Your financial professional can help you determine whether these securities fit your investment objectives and risk tolerance and which types of bonds may best suit your portfolio. For more information about premium bonds, talk to your financial professional today.

1. PREMIUM BOND

  • 50,000 Aaa/AAA
  • 15-year municipal bond, non-callable
  • 4.00% @ 110.25
  • YTM of 3.15%
  • Investor receives 30 semiannual interest payments of $1,000
  • Total of $30,000 and pays a premium of $5,125

2. PAR BOND

  • 50,000 Aaa/AAA
  • 15-year municipal bond, non-callable
  • 3.00% @ 100.00
  • YTM of 3.00%
  • Investor receives 30 semiannual interest payments of $750
  • Total of $22,500 and pays par for the bonds

OUTCOME

  • Bond #1 pays a total of $24,875 (interest payments minus the premium amount)
  • Bond #2 pays a total of $22,500
  • Investor receives $2,375 more in income from the Premium Bond over the life of the bond compared to the Par bond

Moody’s; AAA, Highest quality, with minimal credit risk. S&P: AAA, Extremely strong capacity to meet financial commitments. Highest Rating.

Call 1-800-836-8240 To Speak To A Bond Specialist

Bonds may be purchased or sold at above or below face value. They are designed to pay income at a fixed rate and to return the face value if held to maturity. If they are sold before maturity, the proceeds may be greater or less than your original cost, depending on current market conditions. Early redemption or call provisions may apply. Because all fixed-income securities are subject to current availability, it may take several weeks to accumulate your portfolio. Our firm is not a legal or tax advisor. However, its financial professionals will be glad to work with you, your accountant, tax advisor and/or lawyer to help you meet your financial goals. The solutions discussed may not be suitable for your personal situation, even if it is similar to the example presented. Investors should make their own decisions based on their specific investment objectives and financial circumstances. It should not be assumed that the recommendations made in this situation achieved any of the goals mentioned. This example is hypothetical and does not represent any specific investments or strategies.