Saving acount or Premuim Bonds??

Corley

Hi all first post here anyway just a quick question really im currently trying to save money long term, but im not to sure which route to take. Do i go Premuim Bonds, or get a ISA?? the amount of money i intend to put away each month would not be much probabaly about 50-100 but its a start yea?
So what would you guys recommend?

Al_Mac

Depends what you want. Premium bonds do not guarantee an increase, no win no increase. And goes down in value over time. Savings you do get something back.
:beer:

muddyfox470

Al_Mac wrote:

Depends what you want. Premium bonds do not guarantee an increase, no win no increase. And goes down in value over time. Savings you do get something back.
:beer:

Just to elaborate, the amount of bonds don't decrease, their equivalent value goes down, as it is eroded by the inflation.

However on the scheme of things, if you want you could put a little in premium bonds say £100, and then leave that there, and when you get some more money start saving in a saving account, i.e. a branch or an online one.

There is alot of info about what is available to you.

Premium bonds will give you access to better returns, but it is based on luck. However with a savings account you would expect to earn £5 interest (if the money was in at the start of the year) by the end of the year.

If you feel lucky go for premium bonds, some people have had premium bonds all their life and haven't won anything, and then there are a few people who have not many premium bonds and have won more than £10000!!!

It is totally up to you.

Ian

Fatboy_NSS

If you're after a sensible suggestion, it's got to be ISA. Premium Bonds pay an average return of 3.2% tax free, whereas you can get around 5% in a cash mini ISA. Unless you're a higher rate taxpayer there are always better options available than premium bonds.

Of course there's always the chance of winning a million on the PBs, which could well be why they're so popular!

Milarky

Look at the current prize distribution: It shows that although PBs pay 'on average' 3.2% that is a fallacy - since it cannot reflect 'average luck'. For sake of argument even if you were 'guaranteed' to win a prize every single month [on a holding of £18,000?] that prize is highly unlikely to attract a 'large prize' figure - in the range £5000 to £1 million - because while there are over 1 million prizes [as National Savings fondly reminds us] only 168 of them are 'large'. So forget about winning a large prize - it ain't going to happen.

However this virtually inaccessible 'large prize' fund takes 5% of the 'pot' [mostly on account of the Big One] so straight away your 'interest rate' falls from 3.2% to 3.04%.

And then if you can't possibly expect to get one of these prizes the 'medium prize' fund takes another 5% - and only shares about 4,200 prizes - less than 1 prize in 200 in other words. So your effective 'interest rate' falls again - to about 2.88%

In practice, therefore, anyone who holds enough premium bonds to regularly win a prize can only expect to net about 9/10ths of the headline rate. [It used to be much worse than this, actually, about seven years ago it was more like 15/20ths!]

If a private sector bank or organisation devised a scheme like National Savings Premium Bonds and claimed to be paying an 'interest' rate of 3.2% knowing that it was effectively 10% less than that they wouldn't be allowed to get away with it.

MJSW

Milarky wrote:

Look at the current prize distribution: It shows that although PBs pay 'on average' 3.2% that is a fallacy - since it cannot reflect 'average luck'.

You must have a strange definition of "average luck"! Premium Bond holders as a whole will receive 3.2% of the total fund as prizes. By definition, each individual holder will therefore receive, on average, 3.2% too. Clearly there is a high chance that you will receive less than the average and only a relatively small chance that you will receive more than the average, but that doesn't change the fact that the average is 3.2%!

Using your bizarre method of calculating an "average", I'm surprised you aren't claiming that the average rate is 0%! e.g. "The chances of a single bond winning a prize is just 1 in 24000. As this is very unlikely to ever happen, let's just pretend that it never happens at all. Therefore with "average luck" no bond will ever win a prize, and so the average return on Premium Bonds is 0%. QED."

ReportInvestor

Fatboy_NSS is right.

If these are your basic savings then they should be in a cash ISA where you are currently beating inflation quite comfortably and can build up your rainy day fund more quickly than if you won the "average" for premium bond chancers.

If this is your emergency savings pot then holding them in an instant access ISA (they still pay top rates) means you could access them easily [unlike Premium Bonds] if you really had to.

Premium Bonds are worth considering if you are a 40% taxpayer who already uses up their annual ISA allowance. That average 3.2% tax free "return" on PBs is worth 5.34% gross to them.

Therefore the big winners tend to come from this category, since there are lots of them with the full ?30K? invested in Premium Bonds.

I don't hold any Premium Bonds. But then again, I've never bought a lottery ticket so you can take my opinion with a pinch of salt.

sleepless_saver

Each £1 has a 1 in 24000 chance of winning something on each monthly draw, so if you have £100 then your chances each month are 1 in 240. Over the course of a year that would be 1 in 20. So you have a 19/20 chance of not winning anything in a year with PBs if you have £100.

If you have it in an Alliance and Leicester ISA then you will get £5.40 tax free over the year. Boring but reliable and thanks to compound interest you can build up a tidy sum over a period of time if you're planning to save regularly.

Apparently about 200,000 people hold the max £30k in PBs. Though they are less than 1% of the total PB holders, they get about a quarter of the winnings. That leaves 75% of the pot for the other 99% of us.

On the other hand you might just win the jackpot! :DYour choice.

dunstonh

I am currently investing some money for a regular client who gave the premium bonds a punt for 2 years. He did just below 3.2% in year 1 but year 2 has had virtually nothing. His two other investments, a Pru with profits bond averaged 8.2% net p.a. and his NU property fund averaged 9.31%p.a. He is now withdrawing the premium bonds and investing it in to something more appropriate for his goals and risk profile.

Corley

taking the £100 example, i think i could live without £5 or so a year for chances in a draw for alot more cash? even if i didnt win once missing out on £5 isnt that unbariable is it??

sleepless_saver

If you put £100 a month into an ISA at 5% for 12 months i.e. you invest £1200 in year 1 then after 10 years you will have about £1900 (could be higher or lower depending on interest rates) . If you put the same amount in PBs then you would have an expected win of around £400 over the 10 years (though it could of course be MUCH higher or MUCH lower).

the figures which I hope are right - back of an envelope stuff - don't take account of inflation.