Deciding between premium bonds and easy access savings

gladiolus

I'm looking to move some money out of a current account where it's accruing zero interest. After perusing the savings section on MSE, it would appear that the prize rate on premium bonds is set to increase to 4% from August. This compares to 4.2% interest on the Sainsbury's Defined Access Saver. Is there any argument for putting the money in premium bonds instead of a savings account which will offer guaranteed interest?

refluxer

The Premium Bond prize fund may be rising to 4% but someone with average luck would expect a return of less than that, due to the way the prizes are allocated. I'm not sure what the exact percentage would be (based on a prize fund of 4%) so hopefully someone can advise on that. You also need a large holding (many tens of thousands up to the max £50k) to stand a good chance of getting near that figure.

One benefit of Premium Bonds prizes though is that they're tax-free, so have a think about your tax position and whether you're likely to pay tax on any interest you'd earn in a savings account.

If you're a low earner and/or not likely to exceed your personal savings allowance and have less than £20-30k to save then you'll probably be better off with a savings account. I would avoid the Sainsbury's Defined Access Saver though - there are better options paying around the same rate (or higher) with less restrictions.

Doctor_Who

refluxer said:

The Premium Bond prize fund may be rising to 4% but someone with average luck would expect a return of less than that, due to the way the prizes are allocated. I'm not sure what the exact percentage would be (based on a prize fund of 4%) so hopefully someone can advise on that. You also need a large holding (many tens of thousands up to the max £50k) to stand a good chance of getting near that figure.

One benefit of Premium Bonds prizes though is that they're tax-free, so have a think about your tax position and whether you're likely to pay tax on any interest you'd earn in a savings account.

If you're a low earner and/or not likely to exceed your personal savings allowance and have less than £20-30k to save then you'll probably be better off with a savings account. I would avoid the Sainsbury's Defined Access Saver though - there are better options paying around the same rate (or higher) with less restrictions.

And maybe have access to some/all of the starting savings rate (upto £5K @ 0% tax). I agree with refluxer, unless you are thinking of putting a large sum in to premium bonds then, in the present interest rate climate, you are probably better off with a savings account paying 4%+. Of course, there are other reasons why people hold premium bonds and that has been discussed many times on other threads.

Albermarle

Premium bonds - any point investing under £1000's — MoneySavingExpert Forum
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PixelPound

As there are a few Easy Access accounts paying over 4.2%. Open one of these today and move your money there today, then you are earning something whilst you decide what to do. (see https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/#easyaccess or elsewhere)

Any premium bonds bought in July will be first entered into Septembers draw, so if going down this route there is no advantage putting the money in sooner than the end of the month (though if you don't have an NS&I account it might be prudent to buy say £25 sooner as they say can take upto 7-10 days).

You don't say how much you have and whether it's surplus you want to stick away for a while or something that you want quick access to (e.g. emergency fund), or using for a specific budget (e.g. housing deposit). This could well affect what suggestions are best.

RobM99

It depends on your way of thinking. If you want a return, then I'd say 'no' to PBs. However if you consider like buying a lottery ticket and getting your money back if you lose, then it seems a good shout.

Stubod

How much are you lookink to save in PB's?....unless you are into £30k+ I would stick with a guaranteeed savings account.

Also what are your longer term objectives, do you need access to the money, what sort of timeframe are you looking at. Do you have any other savings / mortgage / pension  etc. etc......maybe a better option to put money into your pension?