Should I buy premium bonds? (No, seriously)

Masomnia

I've inherited rather a lot of money* which I wasn't expecting, but here we are. It's enough to have to pay tax on the interest that I receive over the year.

I don't own a property, but the plan is to buy one in the next 1 - 3 years and for that I'll need a sizable deposit here in the South East.

I'm currently getting the interest on my savings paid to me monthly so I can take as much of it in this tax year as possible. Once that gets to £1k I'll change the accounts to paying annual interest to spread the income across the tax years (not that I'd ever avoid tax of course ).

I hadn't thought of it until last night but actually am I not better off with premium bonds. I can buy £50k's worth and get the returns tax free. The principal left over would leave me just over £1k in interest per annum, which is fine. The rest would be tax free in PBs.

I've got a couple of high paying current accounts, got the ISAs sorted, regular savers etc.

Premium bonds; the return will be tax free, so even if I don't quite make 1.4% I'll most likely still be better off because the alternative would be taxable, and obviously if I beat that on average then even better. They're instant access so when and if I buy a property the money is there at short notice. I'm a basic rate tax payer. I'm 29 and have a figure around my annual salary in a pension pot which I think is decent enough.

Failing that what can I do? With a short timescale I'm not going to be putting it into high risk funds. The fact that savings rates are lower than inflation is a pain, but if house prices don't outpace interest rates then I don't think I'm doing too badly. If not PBs then what? The only other thing I thought about was cash-like investments in a stocks and shares ISA but that doesn't sit right either.

Interested in your perspectives.

*relatively

LHW99

Premium bonds are unlikely to make you a millionaire (though you can always hope!) but for a possible short term place for a house deposit they can be a bit of fun, without losing your money as in the National Lottery.
I used them for something similar years ago, and as long as you realise you probably won't make a mint they are safe, but as you can only put in £50k, that's below the protection you get on normal accounts. Theres a page on MSE about them
https://www.moneysavingexpert.com/savings/premium-bonds/

Raudi_2

I was in a similar situation to you, I used Premium Bonds and would recommend them. They are really easy to use and safe. Personally my returns were above average but nothing to get excited about.

Quick tip: Only put money in these at the end of a month as no interest earned before. Also don't expect to win big - every month I would get an email saying I had won but would have to log in to see what it was. It's a pain logging in every month to check.

ValiantSon

If you can lock the money away for one year then no, I wouldn't bother with premium bonds. You can open a one year fixed rate savings bond with Charter Savings Bank paying 2.06%. Even after paying tax on the interest earned, your effective interest rate with this will still be 1.65%, so beating the notional 1.4% with premium bonds. (You can get an effective rate of 1.78% if you use Raisin - getting £80 tax free cashback - and 2.02% via an ICICI Bank one year fixed rate savings bond).

Too many people let the tax tail wag the savings dog. Avoiding the tax (perfectly legal - it is evasion that is criminal) doesn't necessarily give the best return.

ValiantSon

Raudi wrote: »

Quick tip: Only put money in these at the end of a month as no interest earned before.

You don't earn any inerest on premium bonds, at any point, ever.

Mr.Saver

Totally agreed what ValiantSon said, please do your calculation first. The most tax efficient way isn't always the most profitable way. In fact, the most tax efficient way of saving is very unlikely to be the most profitable, otherwise everyone would do that (and hurt the taxmen).

EachPenny

Raudi wrote: »

...every month I would get an email saying I had won but would have to log in to see what it was. It's a pain logging in every month to check.

You don't have to log in, you just enter your holder's number into the NS&I prize checker and it will give you details of your wins.

PasturesNew

Martin used to say "it's worth it for the What It ..."
Then he seemed to change his mind when they altered the %age and winnings values.

But, if you don't do it ... you'll never know.

Go on ... lob some at it.

kidmugsy

Premium Bonds are a fine deal for many people (though not for everyone). Ignore the common prejudice against them on this forum.

In your shoes you might consider LISAs and Help-to-buy ISAs too, if you happen to qualify for them.

cattie

EachPenny wrote: »

You don't have to log in, you just enter your holder's number into the NS&I prize checker and it will give you details of your wins.

I always receive a letter telling me I've won. I have any winnings auctomatically reinvested into PB's, so perhaps that's why I get letters to inform me of any wins.

Toooldforthisagain

There is a good PB app tells you the amount you have won straight away :j