Switch from Premium Bonds to easy access/60/90 day notice savings account or not?

aroominyork

Stargunner said:

I will be keeping my max holding as it is a good tax shelter for me.

Understood, especially if you are a higher rate taxpayer. But maybe look at the threads about gilts. A low coupon gilt (eg 0.25% or 0.50%) with a tax free capital gain might suit you better.

cricidmuslibale

oz0707 said:

Wheres_My_Cashback said:

lohr500 said:

At the start of 2021 when interest rates on easy access and 60/90 day saving accounts were next to nothing, we put a chunk of our "easily accessible, emergency fund" money into Premium Bonds. 

But the landscape is changing rapidly and I am not convinced PB are now the best place for these funds. I realise NS&I have announced that the prize pot will be increased from the October draw onwards. However, the MSE PB calculator shows that we "might" see a 2% p.a. return on our £50k.

At the risk of losing out on a massive win, I have decided to cash in our PB after the October month end draw and put the cash into whatever fscs protected savings account is offering the best deal in early November.

Are others thinking the same, or do you think I have made the wrong decision? Interested to hear your thoughts.


 

Tax status is all important for individuals when considering PBs against AERs. For higher tax rate payers they still provide a very good option which at the new rate will effectively easily beat most notice accounts up to 120 days.

This was my immediate thought. I suppose it depends how much other savings you have but I suppose 2% is equivalent to 2.5% for basic rate taxpayer

Cricidmuslibale said:

Yes and I believe that is key to what the prize interest rate on Premium Bonds is likely to be over the next year or two as the Bank of England base rate initially continues to rise, then plateaus and then gradually falls back to a lower point where it will hopefully stabilise.

I.e. In my opinion NS&I will probably have basic rate as well as higher rate taxpayers in mind, and will try to do its best to ensure that its tax free prize interest rate is roughly equivalent to the interest rates of the leading easy access savings accounts after basic rate tax has been deducted. I would hazard a guess that a lot of basic rate as well as higher rate taxpayers currently have a good chunk of Premium Bonds and I don’t think it’s in NS&I’s (and by extension, the Treasury’s) interest right now to oversee a mass exodus of Government funding!

Albermarle

cricidmuslibale said:

oz0707 said:

Wheres_My_Cashback said:

lohr500 said:

At the start of 2021 when interest rates on easy access and 60/90 day saving accounts were next to nothing, we put a chunk of our "easily accessible, emergency fund" money into Premium Bonds. 

But the landscape is changing rapidly and I am not convinced PB are now the best place for these funds. I realise NS&I have announced that the prize pot will be increased from the October draw onwards. However, the MSE PB calculator shows that we "might" see a 2% p.a. return on our £50k.

At the risk of losing out on a massive win, I have decided to cash in our PB after the October month end draw and put the cash into whatever fscs protected savings account is offering the best deal in early November.

Are others thinking the same, or do you think I have made the wrong decision? Interested to hear your thoughts.


 

Tax status is all important for individuals when considering PBs against AERs. For higher tax rate payers they still provide a very good option which at the new rate will effectively easily beat most notice accounts up to 120 days.

This was my immediate thought. I suppose it depends how much other savings you have but I suppose 2% is equivalent to 2.5% for basic rate taxpayer

Cricidmuslibale said:

Yes and I believe that is key to what the prize interest rate on Premium Bonds is likely to be over the next year or two as the Bank of England base rate initially continues to rise, then plateaus and then gradually falls back to a lower point where it will hopefully stabilise.

I.e. In my opinion NS&I will probably have basic rate as well as higher rate taxpayers in mind, and will try to do its best to ensure that its tax free prize interest rate is roughly equivalent to the interest rates of the leading easy access savings accounts after basic rate tax has been deducted. I would hazard a guess that a lot of basic rate as well as higher rate taxpayers currently have a good chunk of Premium Bonds and I don’t think it’s in NS&I’s (and by extension, the Treasury’s) interest right now to oversee a mass exodus of Government funding!

You are probably right to some extent, but the large majority of PB holders will not be natural 'switchers', so the PB rate just has to be not too obviously adrift from easy access rates, rather than matching the best accounts.
PB's are already better than many big banks easy access savings rates.