£7,000 Premium bonds - what to do ?

cisamcgu

I have about £7K of premium bonds, which I find disappointing. Should I cash them in and :

a) pay £7K off a 2.4% mortgage (about £70K left)
b) pay £7K into AVC's over the next few months (no AVCs at present, 40% tax payer))
c) add £7K to my S&S ISA (VLS 60 - about £25K at present)
d) or something else .. ?

Andrew

El_Torro

I haven't been a fan of premium bonds since I sold mine 10 years ago. Since the average return is 1.3% I think any of the options you suggest are better than keeping them.

The benefit of premium bonds is that you're not risking capital and you can cash them in at any time. If you want to keep this flexibility you can put the money in high interest current accounts, assuming you haven't maxed those out already.

Onawingandaprayer

If you handle them online, it's pretty easy to encash them these days. Why not sell them gradually - perhaps £500 per month and drip-feed the money into your S&S ISA?

bigfreddiel

Put them into Avis, all £7k, do it now!

Cheers fj

kidmugsy

Probably use the money to avoid 40% tax by making pension contributions.

Pincher

Grab the 40% tax break, while it's still there.

jimjames

I assume this isn't your emergency fund and that you have other immediately accessible cash. If that's the case then pension seems good option for the tax breaks.

Thrugelmir

Grab the pension tax relief. Suggestions that further pension reform is on the agenda shortly.

cisamcgu

Thanks - I think the AVCs are the way to go too. So, a follow up question, and apologies if this is a daft one :

If, for example, my salary was £47,000 then everything over £42,385 is taxed at 40% i.e. £4,615 but, if I pay into a company DB pension at the rate of £4,750 per annum does this mean that any extra AVCs I decide to add would only receive a 20% benefit rather than a 40% since I have "used" the amount of 40% salary in the company pension scheme ?

El_Torro

cisamcgu wrote: »

Thanks - I think the AVCs are the way to go too. So, a follow up question, and apologies if this is a daft one :

If, for example, my salary was £47,000 then everything over £42,385 is taxed at 40% i.e. £4,615 but, if I pay into a company DB pension at the rate of £4,750 per annum does this mean that any extra AVCs I decide to add would only receive a 20% benefit rather than a 40% since I have "used" the amount of 40% salary in the company pension scheme ?

I am not familiar with DB schemes (never had one) but if this was a DC scheme you would only receive 20% tax relief in this scenario, not 40%.

cisamcgu

That is what I suspected !