Premium Bonds: Are they worth it? Discussion Area

Gorgeous_George

Pablo1971 wrote:

1. The interest rate is abysmal - why is it so poor?
It should be more competative.

The 'interest rate' used is poor for non-tax payers at 3.15%

It's rather good for 40% tax payers at an effective 5.25% (not ignoring the 'exremely low probability but not negligible to some' prizes)

It's not great for 20% tax payers at an effective 3.9375%

Undoubtedly, PBs are designed as an investment for the more wealthy people amongst us and a gamble for the rest of us (mugs).



GG

cheerfulcat

ReportInvestor wrote:

. Are there extra admin costs, as is sometimes given as a reason? I very much doubt it compared to running accounts.

The answer is in the annual report.

" As products with tax-free returns deprive the Exchequer of
revenues, we take account of the amount of tax foregone
through the purchase of these products by adjusting the rates
of interest offered to the customer. "

PBs do seem to be "the people's choice". Why not democratise it?

They are Gordon's cash cow. Nothing to do with " the people " except that many of them fall for the spin.

Pablo1971

Thanks for the welcome - I've been an avid reader for some time. Great site

"Why not democratise it?" ; What a good idea

BTW, I am a higher rate tax payer (not by too much though!) and I realise that being so does improve the return, but that's not why I have PB's.

ReportInvestor

cheerfulcat wrote:

They are Gordon's cash cow. Nothing to do with " the people " except that many of them fall for the spin.

Arise Lord Sugar .

Welcome to the "New [Labour] " Establishment.

Pablo1971

cheerfulcat wrote:

The answer is in the annual report.

So they're not really tax free at all. Just slightly better value for the better off. What a surprise! That Gordon, he doesn't miss a trick does he?

Sigh!

ReportInvestor

Would you still hold PBs as a BRTaxpayer now you know what you know, Pablo?

Gorgeous_George

Pablo1971 wrote:

So they're not really tax free at all. Just slightly better value for the better off. What a surprise! That Gordon, he doesn't miss a trick does he?

Sigh!

I know he's been around a while but i don't believe Mr G Brown was involved in the introduction of PBs.

Maybe it's Tesco's fault.



GG

Pablo1971

Yes, I would.

I wouldn't hold a lot, or indeed any if I had expensive debts (credit card or whatever), but I don't. And I don't view PB's as part of my pension plan or as a mortgage endowment - that would be silly.

I only hold 1000. I suppose I could pay the £1000 off my mortgage instead but this money is part of my "might need quickly" cash in case of redundancy or other unforseen circumstance.

I suppose I could put it in a savings account, but it'd only earn me £30 odd after tax. I'm ISA'd out for this year already and I have other [taxable] savings anyway, and whilst they're OK, they're dead boring !!!

Of course return is a consideration, but the chance of it turning a bigger prize appeals to me. I don't spend money on cigarettes or gambling on horses or whatever (notice no comment concerning abstinence of beer however!) so I just see it as a £30 gamble (compunded year on year, yes, I know, before anyone points it out) for a chance of a windfall. Let's put it in context... I spend more on washing powder!

Lord Sugar. LOL, now that would be funny!

cheerfulcat

Gorgeous_George wrote:

I know he's been around a while but i don't believe Mr G Brown was involved in the introduction of PBs.

No, but it was he who introduced the rule about adjusting the interest rate so as not to deny the Exchequer the revenue. The tax-free label is now largely smoke and mirrors, at least for BRTs.

Gorgeous_George

cheerfulcat wrote:

No, but it was he who introduced the rule about adjusting the interest rate so as not to deny the Exchequer the revenue. The tax-free label is now largely smoke and mirrors, at least for BRTs.

Thanks.

How did it work before the changes?



GG