Premium Bond new "interest" rate

Stonk

I can't see any mention on here of this yet. The "interest" rate for Premium Bonds has been increased from 3.15% to 3.55% with effect from the next draw.

This is a significantly greater increase than the BoE base rate increase - thus reversing some of the recent decline in competitivity of PBs. They are now worth equivalent to 5.92% for a higher rate taxpayer (but are still a poor deal for anyone else).

meanmachine_2

It's been mentioned plenty. See other bonds threads.

And 3.55% is only for the Xmas draw.

The int rate is actually 3.4% from January onwards.

Stonk

Wow. The tables on their website don't mention that! If they've updated the table for Dec and they know that it will drop again in Jan, then it's a teeny bit devious of them not to mention so ...

ReportInvestor

Wot a laff.

Would the FSA/government let a bank get away with advertising the rate of any account that lasts for just one month - or ignoring the AER (Annual equivalent rate) :rotfl: ?

nrsql

AER doesn't really have any meaning for PBs.
The interest rate is actually the percentage of the fund that is available for prizes - nothing to do with how much you will receive.

When I estimate the expected return I just include the £50 and £100 and ignore everything else as I think that's all I am likely to receive - have a look at the percentage for those prizes and you are probably not far off if you have enough PB's.

ReportInvestor

It's a personal thing. Others have argued that's not the best way to do it.

Effectively you are saying that the interest rate quoted by the government doesn't have any meaning - and yet it's a factor many Higher Rate Taxpayers take into account when investing.

Re AER - you could argue that a meaningful first year's AER = 11/12 of the interest rate because you are left our of the draw for one month.

nrsql

>>It's a personal thing.
Valuation is always a personal thing.

>> Effectively you are saying that the interest rate quoted by the government doesn't have any meaning
Well, I don't believe the rate for the total prize fund is useful for valuing the investment..

>> AER = 11/12 of the interest rate because you are left our of the draw for one month.
Not really - you are included in the draw if you hold the bonds at 1st of month. So can hold for 12 months and a couple of days to get included in 12 draws.

ManAtHome

ReportInvestor wrote:

Effectively you are saying that the interest rate quoted by the government doesn't have any meaning

Well very few other things quoted by the government have any meaning...

Anyway, didn't ING have a high rate for a month or two recently? (not sure what/if they quoted for AER)

ReportInvestor

That ING offer did make things complex for 2 to 3 months.

But it wasn't open to new savers, unlike the NSI offer, so it wouldn't have fallen foul of FSA rules re banks.

ManAtHome

So if I take any product with an institution where I have any other product it's "buyer beware/tough sh*t"?

This is a serious question by the way - at some point I'll be casting around for pension annuities (on part of the fund), could I be stitched up by any institution I have any other account/investment with?

ReportInvestor

I take the point that any "AER" varies according to what day you buy the bonds.

ManAtHome wrote:

So if I take any product with an institution where I have any other product it's "buyer beware/tough sh*t"?

This is a serious question by the way - at some point I'll be casting around for pension annuities (on part of the fund), could I be stitched up by any institution I have any other account/investment with?

Not sure what you mean, MaH

You will be able to buy your annuity at the best rates available in the market at the time & no tricks up the provider's sleeve.

Use the FSA comparative tables if you are a straighforward case or investigate via and adviser if you are a special case (e.g. have smoked 40 a day and have a long term history of heart disease).