Premium bonds vs tax on my interest

[Deleted User]

I appreciate that I am in a fortunate position whereby I have enough savings to now have to pay tax on the interest. I have my maximum ISAs and also my maximum premium bonds. However, despite this, often I win nothing and I am thinking about investing some of my premium bonds into savings bonds where, at least, I will be guaranteed some interest, even though it will be taxed. I'm not a risk taker so not interested in stocks and shares ISAs. Is there anyone out there in a similar position who has taken a similar decision? thanks

Dazed_and_C0nfused

[Deleted User] said:

I appreciate that I am in a fortunate position whereby I have enough savings to now have to pay tax on the interest. I have my maximum ISAs and also my maximum premium bonds. However, despite this, often I win nothing and I am thinking about investing some of my premium bonds into savings bonds where, at least, I will be guaranteed some interest, even though it will be taxed. I'm not a risk taker so not interested in stocks and shares ISAs. Is there anyone out there in a similar position who has taken a similar decision? thanks

It could be argued you are a risk taker as you will be losing money due to the impact of inflation.

But if you take the £50k out of Premium Bonds you can easily get 6% so 4.8% net for a basic rate taxpayer. 

£2,400 guaranteed but no chance of winning a million 😃

Albermarle

 Is there anyone out there in a similar position who has taken a similar decision? thanks

Such decisions are discussed on the forum every day, especially now with the better savings rates.

If you hold the max premium bonds, normally you will get a different level of prizes each month, although on average 1 month out of 8 will be blank. On average though you should get an equivalent interest rate of just under 4%, plus a  small chance of winning a bigger prize like a £500 or a £1000, and a very small chance of winning something bigger. All prizes are tax free.

It is a personal decision if you prefer thus scenario or a more standard savings account and pay tax.

For the long term it is more risky being in cash than investing.

Chickereeeee

[Deleted User] said:

I appreciate that I am in a fortunate position whereby I have enough savings to now have to pay tax on the interest. I have my maximum ISAs and also my maximum premium bonds. However, despite this, often I win nothing and I am thinking about investing some of my premium bonds into savings bonds where, at least, I will be guaranteed some interest, even though it will be taxed. I'm not a risk taker so not interested in stocks and shares ISAs. Is there anyone out there in a similar position who has taken a similar decision? thanks

As recent interest rate rises take a while to filter through to increased prizes, you may find you win more in the coming months! 

eskbanker

Albermarle said:
If you hold the max premium bonds, normally you will get a different level of prizes each month, although on average 1 month out of 8 will be blank.

Chickereeeee said:

As recent interest rate rises take a while to filter through to increased prizes, you may find you win more in the coming months! 

The most recent change has reduced the average incidence of blank months (for a maximum holding) from one in eight to one in ten, but even before that it would be very unlucky for OP to literally be in the position of "often I win nothing".

Chickereeeee

eskbanker said:

Albermarle said:
If you hold the max premium bonds, normally you will get a different level of prizes each month, although on average 1 month out of 8 will be blank.

Chickereeeee said:

As recent interest rate rises take a while to filter through to increased prizes, you may find you win more in the coming months! 

The most recent change has reduced the average incidence of blank months (for a maximum holding) from one in eight to one in ten, but even before that it would be very unlucky for OP to literally be in the position of "often I win nothing".

Granted,  but will now only just be starting to see the affect of interest rate changes from back in June 2023 coming through!

Sg28

[Deleted User] said:

I appreciate that I am in a fortunate position whereby I have enough savings to now have to pay tax on the interest. I have my maximum ISAs and also my maximum premium bonds. However, despite this, often I win nothing and I am thinking about investing some of my premium bonds into savings bonds where, at least, I will be guaranteed some interest, even though it will be taxed. I'm not a risk taker so not interested in stocks and shares ISAs. Is there anyone out there in a similar position who has taken a similar decision? thanks

Purely from a mathematical perspective you will, on average earn more interest in a savings account. See Dazed's example. 

Personally I like premium bonds as they are a bit of fun each month.

[Deleted User]

Even with the saving allowance, anything above £25000 (circa 4% interest) is subject to tax. 
Perhaps 50% savings / 50 % premium bonds?

[Deleted User]

If I pay tax on interest, once the banks have provided the information to HMRC in October, for the previous year, how is the tax taken? 
Would my tax code be adjusted, or would they want a payment? Thanks 

InvesterJones

[Deleted User] said:

If I pay tax on interest, once the banks have provided the information to HMRC in October, for the previous year, how is the tax taken? 
Would my tax code be adjusted, or would they want a payment? Thanks 

If you're earning a UK taxed salary then they'll adjust tax code. If they aren't sure they can reclaim it that way they'll send a request for payment.

poseidon1

[Deleted User] said:

I appreciate that I am in a fortunate position whereby I have enough savings to now have to pay tax on the interest. I have my maximum ISAs and also my maximum premium bonds. However, despite this, often I win nothing and I am thinking about investing some of my premium bonds into savings bonds where, at least, I will be guaranteed some interest, even though it will be taxed. I'm not a risk taker so not interested in stocks and shares ISAs. Is there anyone out there in a similar position who has taken a similar decision? thanks

I had £11,100 in premium bonds for many years averaging no more than £150 to £200 in prizes each year. This was acceptable when deposit rates were near zero, but now wholly unacceptable when 6% fixed rate savings account are easily available. 
I cashed in last month for a guranteed monthly income of £55, which even after tax ( deferred for a year), is a much more satisfactory outcome.