Premium bonds - a good idea or not?

lcfcstephen

I have been looking at premium bonds and wondering what people thought, they average about 1.35% interest which is slightly more than the current best buy easy access saver (1.65 --> 1.32% net). So do people think that premium bonds are good, or worth it? This would be to replace the money I have in an easy access account at the moment - I have used my Isa allowance for this year as well as having some high interest current accounts. Should I get some premium bonds?

Alter_ego

Are you willing to spend the interest on a gamble, possibly with nil return?

Would you like to gamble the interest in the hope of a large win?

Neil_Jones

lcfcstephen wrote: »

I have been looking at premium bonds and wondering what people thought, they average about 1.35% interest which is slightly more than the current best buy easy access saver (1.65 --> 1.32% net). So do people think that premium bonds are good, or worth it? This would be to replace the money I have in an easy access account at the moment - I have used my Isa allowance for this year as well as having some high interest current accounts. Should I get some premium bonds?

Premium Bonds don't pay interest, they're essentially a state version of the Lottery. Treat any "win" as just that; a treat. I have £30 worth that I was given as a child; over 33 years the return is exactly nil.

Plus the odds of winning anything on premium bonds are so far and wide you're far more likely to win anything on the National Lottery. However with Premium Bonds you can get your money back plus there's no limit to the claim (as opposed to 180 days for the lottery)

If it's the interest you want, go for the easy access saver or any account that pays interest.

TonyMMM

I have a holding, as a small part of an overall plan, which has paid me "interest" at the expected 1.3% rate . As it is tax-free, risk free and access to funds is easy then they have a place as a type of savings account.

They are not an investment likely to produce any great return above that though (unless you are very lucky).

I would consider including some as part of a portfolio, once I had filled other tax free account options.

Malthusian

Suppose you have a choice between one bank that paid 1% interest, and another bank that flipped a coin and gave 0% interest for heads and 2% interest for tails. Although both have the same expected return (1%), most would choose the first bank.

Premium Bonds are just a much more complicated version of the same gamble. The chance of getting nothing at all is much higher and the reward if you are incredibly lucky is also higher. But conventionally, most people would expect to receive a higher return in exchange for the risk that you get nothing. In fact you get nothing at all in exchange - as you say the return is about the same as an easy access account. (Usually it has been lower.)

They are rubbish as an investment so unless you have a cultural reason for holding them (e.g. your granny left them to you and they give you a warm glow which an easy access account would not) you should look at other options.

dunstonh

If you put it in a savings account which paid interest on a monthly basis, would you then withdraw that interest and go the newsagent and buy lottery tickets with all that interest?

That is what you are doing with Premium bonds.

For higher rate taxpayers who have used up all their ISA allowance they can be useful. However, for small savers, using ISAs and pensions (since the changes) can be far more effective in the long run.

Stompa

lcfcstephen wrote: »

I have been looking at premium bonds and wondering what people thought, they average about 1.35% interest...

Well yes, but if you have average luck, you won't win as much as 1.35%. As the article here:

http://www.moneysavingexpert.com/savings/premium-bonds

points out, "The jackpots, won by a tiny number of people, skew the payout average and make the interest rate look far more generous".

atush

Premium Bonds are fine, if used as a little fun. Maybe 100-1K pp?

But not to make interest. For money you need to see grow, then use a current acct. Many pay 3-5% interest. They are far better than an instant access acct.

Archi_Bald

I use PBs as a cash resource, alongside my investments and other cash resources. On the full £50K, I am so far averaging 1.93% AER for the calendar year, from just a string of £25 wins. Under the circumstances, and as a HR tax payer, I am reasonably happy with that.

I have probably jinxed it now

Mr_Costcutter

I'm a higher rate tax payer and have been happy with an average of 2% annually. However, they wouldn't be my first port of call if I had a sum of money at my disposal. Dunstonh's advice is I think, spot-on.

My wife bought £5,000 worth of premium bonds and in the very first draw won the same amount - £5,000. That was around 5 years ago and she hasn't won anything since. I have the maximum allowed for investment and yet have never won as much as £5,000 in any draw. So, a large element of luck is involved. In my experience, some people do seem to be luckier than others.

talexuser

I've had 5 grand in since '99 and won a total of £1125 in total so far, the vast majority in 25s, once had a few 50s. If you think that sounds not so bad, work out the return every year, and bear in mind the chances are lower now than they have been in the past.

My advice, first get an emergency fund for the roof blowing off, or the car trashed, with a few high paying bank accounts. Then a good low cost pension. Then think about filling your isa allowance each year for the long term with low cost investment funds. When all of that is taken care of and you still have some spare buy some bonds just for the hell of it so long as you don't miss the prizes if they never arrive. It may sound boring, but better than betting and never winning, or like the vast majority just winning chicken feed.