Premium Bonds or Savings account?

scottybarg

Hey! I'm looking to move out/be a first time buyer at some point in 2024. I've saved up quite a bit (I guess most of my savings will go on a deposit etc).

I'm just wondering, what should I do?

I have a NS&I Premium Bonds account, most of my savings is in there. I've always managed to win something each month.

I also have a NatWest account, it's a regular saver which is 6% interest. But unlike other regular savers where they expire after a year and you have to start from scratch, this one just lets you keep topping it up. The 6% interest rate is only paid up to £5,000. You can only pay in a maximum of £150 per month, unless you also use their top up/change saver/round up feature - for example, if you buy something for £1.20, it'll transfer to the nearest pound, into your savings account. So if you bought something for £1.20, it would transfer 80p into the 6% saver. You can also "double" it, so you can set it up so for example if you bought something for £1.20, it would transfer £1.60 from your current account into that savings account.

I've managed to get that account up to around £3,500. So only transferring the max £150 a month, and also some of the change savings... it's taken me ages! I get around £16 interest per month at the moment, which would increase to around £25 a month if I get it up to £5,000.

But... would that £3,500 be better off in premium bonds? Yes £16 a month now, or £25 a month future interest is great. But if I put that into premium bonds (on top of what I already have in my NS&I account), do you think it would be better off?

Thank you!

eskbanker

The effective rate for premium bonds is about 4%, so a worse option than earning 6% on the same money.  PB winnings are tax-free, which can make a difference, but you won't be paying tax on savings interest anyway at that level, so sticking with what you have seems the better option of the two, although with hindsight it would have been better to have used a Lifetime ISA, and other options, such as Nationwide's 8% regular saver, may be better still....

El_Torro

Premium Bonds are great if you're a 40% tax payer who's already earning £500 a year in taxable interest, and if you already use up your annual ISA allowance (in Cash ISAS, Stocks & Shares ISAs, or whatever). If you don't fit that criteria there's usually better options.

Sure, you might win £1 million with a couple of thousand pounds put away in Premium Bonds. You might also get hit by a bus tomorrow. I wouldn't worry too much about either event occurring.