Premium Bonds.- Reinvest or high interest account

jonnyb1978

My son has £500 in Premium Bonds which were bought for him around his 5th birthday. (1 and half years ago).

Had a cheque through post winning him £100. This is a good return of 13.33% per year since they started, however prizes are not guarenteed and cancelling any bonds does not take into account inflation on returning your money.

Has anyone any advice whether to reinvest or keep the original money in bonds and any prizes into a high interest account.

dunstonh

or you could buy £100 of scratch cards.

£500 in premium bonds and you have had a lucky win. A very lucky win as the odds are heavily stacked against.

He is 5 years old and in my eyes premium bonds are wasteful. Yes, you have had the luck but over the next 16 years (or whatever) I wouldnt count on that luck and expect the rate of return to fall back to one which is on par or just below inflation.

pbw

personally i would re-invest.

i have enjoyed the following interest rates over the years with premium bonds

2003 1.02%
2004 4.58%
2005 1.87%
2006 7.35%

average 3.71% return

i personally love the thrill of each month i might get lucky and as such have 90% of my savings in there. some people will say i'm stupid but its a personal choice

dunstonh

Seeing as its your personal choice and you are aware that you are losing money in real terms, thats fine as you accept you arent making anything.

However, we are talking about a 5 year old and a term of around 11-16 years. If you want what is best then premium bonds are not that.

si1503

Better off putting the money into a high interest savings account for him. Or better still, putting it into shares (unit trust funds), which is what I will be doing for my youngster shortly.

Poser

Re invest in premium bonds

tomstickland

High interest account.
I'd prefer 5.65% guaranteed than waiting for the wins, which on average turn out at about 3% (I can't remember the exact number, but they quote it on their website).

i have enjoyed the following interest rates over the years with premium bonds

2003 1.02%
2004 4.58%
2005 1.87%
2006 7.35%

How can you enjoy 1.02%? That's losing money in real terms.

jamesd

Well, he got lucky but you might take a look at the records of these:

Norwich Property Trust from Property all regions - real property uk

Baillie Gifford High Yield Bond from fixed interest - UK junk bonds

They were more consistent than Premium Bonds if you want to consider a low risk investment for him. For a bit more risk:

Jupiter Fund of Inv Trusts from global growth - some global equities spread, with the fund manager taking care of switching investments over time.

Not that I'm specifically recommending them but it's probably better financial training than how to be a gambler.

tom188

personally i would re-invest.

i have enjoyed the following interest rates over the years with premium bonds

2003 1.02%
2004 4.58%
2005 1.87%
2006 7.35%

average 3.71% return

i personally love the thrill of each month i might get lucky and as such have 90% of my savings in there. some people will say i'm stupid but its a personal choice

Very much personal choice, but the way things are with inflation you are losing money in real terms.

dancingfairy

Hasn't Martin written an article on them somewhere? Personally I think savings (to be conservative) or investing (ie stocks and shares- but not individual ones- you would need to consider a managed fund probably) which over the term specified (say until they are 16) should average out to give you a decent return and beat inflation.

Do you intend to contribuite at all to this money? will it include birthday/chrsitmas money as he gets older?

aleph_0

dancingfairy wrote:

Hasn't Martin written an article on them somewhere? Personally I think savings (to be conservative) or investing (ie stocks and shares- but not individual ones- you would need to consider a managed fund probably) which over the term specified (say until they are 16) should average out to give you a decent return and beat inflation.

Do you intend to contribuite at all to this money? will it include birthday/chrsitmas money as he gets older?

Article:
http://www.moneysavingexpert.com/cgi-bin/viewnews.cgi?newsid1161700153,9594,

People will have different opinions here, but the question of what to do with the income (reinvest or not) is not really any different to the question of what to do with the capital really. You will get more money having it in a high-interest account (unless you are lucky ), but if you want to keep some money in Premium Bonds, on the gamble that you might win the top prize, then there is clearly nothing stopping you. Equally, you could go for a combination (I admit that I personally have £10 in premium bonds, and I'm prepared to keep that in Premium bonds in case I'm lucky, but all the rest of my savings are elsewhere).