ing v national savings premium bonds???

manhattan

hi everyone,
im quite a regular to this site(every day i suppose) ;D
and i have a savings question for you.
i have had 35k in an ing account for about 2 years,which is earning about £118 a month interest after the tax man .
the interest money is not that important but helps pay a few bills/holidays etc(money for nothing)i suppose.

anyway i am trying to decide if putting 30k in national savings premium bonds and having a gamble, and leaving 5k in ing? would be a good idea which would still give me £20 a month interest.
the wife is not too sure  ::) but i think it may pay out a little more.

any advice on national savings etc are welcome. i have been onto their website but could do with some advice from people who have some experience of national savings premium bonds.
many thanks,

m

MJSW

It depends on your tax position. The ordinary National Savings products are mostly pretty poor. However the tax free products can be very attractive to higher rate taxpayers. If you are a basic rate taxpayer, then I'd probably look elsewhere.

In my opinion, their index linked bonds are by a country mile the best savings accounts on the market for higher rate taxpayers (aside from cash ISAs). At current rates of inflation, the gross equivilent is 7.33% on the 3 year bonds and 7.58% on the 5 year bonds. Obviously these rates aren't guaranteed, as they depend on future inflation levels. However, it would need inflation to fall by around 1.5% from current levels before the equivilent rate dropped as low as Ing's 5%.

For less risk, the fixed rate savings certificates are OK (but again, only for higher rate taxpayers). Gross equivilent is 5.58% on the 2 year bonds and 5.75% on the 5 year bonds. Both of these rates are about the best bond rates available, but they're still not a huge amount ahead of Ing's 5%. It really depends on whether you need instant access and which way you think interest rates are heading over the next 5 years.

manhattan

thanks for your help mjsw,

i was thinking towards premium bonds,

has anyone else here got premium bonds? anyone know what the chances of winning a payout with 30k invested for probably a year or so?

m

malcolmord

I've been told the average payout is about 2.1% per year.

I've got £2700 in premium bonds and have won 2 x £50 in just over a year.

The max you could have used to be £20000 but its now £30000.

At £20000 you could on average expect 8 wins (About £400) but then again you could get luckier and get better thn a £50 payout!!

MJSW

The average payout on Premium Bonds is currently 3.2% tax free (equivilent to 4% gross for a basic rate taxpayer or 5.33% for a higher rate taxpayer). The odds of a win are 1 in 24000 each month, so with 30000 you should win (on average) 1.25 prizes per month or 15 per year.

Whether these are a good idea depend upon your tax rate and whether you are up for effectively gambling the interest you could have earnt at say Ing for the chance of getting a big prize. If you are a basic rate taxpayer, with average luck you will be better of at Ing. If you are a higher rate tax payer, with average luck you will be better off with Premium Bonds. However, if you have less than average luck then you could still end up worse than an Ing account, and there is a slim chance you may receive no prizes at all.

Milarky

From what I previously posted here I would have said that premium bonds are a very poor bet.

However looking just now at the most recent information on the distribution of prizes it now looks much easier to pick up a £100 prize - and that fact is the key consideration to my mind.

The odds on a prize being at least £100 are now just 6.15:1 whereas they had been almost 58:1 just a few months ago! [This is a dramatic 'rejigging' of the prize fund by National Savings and I shall have to redo the original sums concerning 'average luck' and post them here shortly]  :-/

EDIT

Right - some 'facts'

Average prize value: £64 [was £56]
.. This is surprising in itself as the 'smallest' prize was much nearer to 'average' than now appears the case

Frequency of larger wins required: 1 in 3.5714 [was about 1 in 8]
.. This makes a larger win have to come in that much more often - about twice as often to 'break even'

Results:

Less than 'average'
WAS 87% NOW 54%
About 'average'
WAS 10% NOW 45%
Above 'average'
WAS 3% NOW 1%

The important point to note is that it is now much more likely that 'average' luck will be the result - and so the quoted 'interest rate' [of 3.2%] will be achieved in many more instances than before. If you experience less than ‘average’ luck all this means is winning another £50 prize in place of a £100 prize. [Certainly you have more chance of averaging £56 per prize than before!]

Whilst I  hope this helps others - I still would not consider premium bonds personally

manhattan

thanks for that, milarky.

very interesting,
i may just put 5k in premium bonds and leave 30k in ing which would give me £100 a month interest still and hopefully some above average luck on the 5k bonds ::) .

anyway im going to make a decision after new year so i have a bit of time to think. 8) lol.

MJSW

Futher to my post above, National Savings have today reduced the interest rates on the taxfree savings certificates and index linked certificates. The 2 and 5 year fixed bonds now pay 3% and 3.05% respectively, equivilent to 5% gross and 5.08% gross for a higher rate taxpayer. Better rates are available elsewhere.

The 3 and 5 year index linked certificates now pay inflation+0.95% taxfree and inflation+1.05% taxfree respectively , equivilent to 7.08% gross and 7.25% gross for HR taxpayers at the current rate of inflation. Still a great product in my opinion, even at the reduced rates.

As far as I can see, the Premium Bond prize fund remains at 3.2%.