The Name's Bond: Post Office Bond

In 2011, the Post Office Savings Bank (POSB) celebrated its 150th anniversary, having first opened for business on 16 September 1861. The scheme offered ordinary people the opportunity to secure their savings with the government, which was perceived as a solid investment and gave the Treasury some valuable cash assets. Small savers were welcomed, and the association between national government and the Post Office conferred the impression of safety which helped small investors feel secure.

Other financial services were gradually introduced, such as government stocks and bonds (1880), war savings (1916) and premium bonds (1956), and many a child’s first introduction to finance was the Post Office Savings Book.

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Teaching children about finance

In the post-war years, life was frugal and savings carefully hoarded, so it was common for small amounts of money to be deposited regularly in a Post Office savings account and for a child to deposit his or her weekly pocket money. A small amount of interest would accrue, so it paid to leave the money in until it was really needed or desired for a special purchase. There was no risk involved, just the security of a Post Office savings book combined with a child’s feeling of confidence in taking those first steps towards financial independence.

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Premium Bonds were introduced to the UK on 1st November 1956, in a scheme aimed at controlling post-war inflation and turning people back towards saving. Purchased at face value, for a minimum £1 and maximum £500, the Premium Bond represented a Treasury-issued lottery ticket, entered into a weekly prize draw in which the bond could net a large, tax-free, cash prize. As an investment they were worth only as much as you put into them, as they accrued no interest – although the government did (and still does) undertake to redeem them at face value.

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Independence and options

The nature of the national savings institution changed over time, eventually evolving from the POSB to a banking facility, and from 2002 it has been known as NS&I (National Savings & Investments). Splitting off from the national government in 2011, Post Office Money™ is now an independent entity which offers bonds in a variety of savings options, depending on how much you want to save and how quickly you want to be able to get access to it. These are still safe options for a small investor, and include both an Online Bond (with a higher rate of interest) and a Growth Bond (lower interest, but available from the Post Office branch).

Government Bonds used to be perceived as a safe way to invest a moderate sum with a fixed rate of interest, for a pre-determined period, e.g. 1 year, 3 years or five years and some fixed-rate bonds are still considered to offer a good interest rate. On the downside, however, is the split from the Post Office, as you can only access these bonds online. Premium Bonds are judged by some sources as being a waste of time, since the likelihood of winning a large prize is remote… but they’re still better than keeping your stash under the mattress!