What's the current thinking on premium bonds?

dunstonh

I have never known anyone win more than the odd £100

I have.

 Does anyone win the so called bigger prizes? Even 5K? Nevermind 100K.  

yes.

poolboy

I was maxed out on pbs but went 3 months with nothing, sold them and fixed at 6%.  Now savings rates are sub 5% I bought back the pbs in full.  In 4 months I am running at 6% next return, so v happy.

Set your target and stick to it.

subjecttocontract

It depends on individual circumstances, they're tax free, so makes more sense if you're a higher rate tax payer and/or if you have already maxed out your ISAs. Let's not forget that it's also a bit of fun. 

At the end of the year if I've received slightly less than I could have done in a taxable account I'm happy. It only takes one decent prize win to significantly up the average return.

Sarahspangles

Ammah45 said:

I have had the full 50K for two years and average a win percentage of 4% a year. 

I have never known anyone win more than the odd £100. Does anyone win the so called bigger prizes? Even 5K? Nevermind 100K.  

My OH has received 2.2% on a full holding over a year, I’m on 1.8% on an average holding of £20k.

In theory it’s tax efficient for us to have PBs - if we were averagely lucky. But we’re not!

Nebulous2

We've had a fair bit in PBs for over 3 years. (In our terms at least)

It was to meet two different needs. We expected to spend a lot of money, with an indeterminate timescale as it needed agreement from someone else. We also expected to need cash to fund the gap between me leaving work and SPA.

Neither of those needs have transpired and we've drawn down less than expected. We more or less just punted the money there and left it with occasional withdrawals. We've gone from £60k to £50k between us in 3 years. 

The cut in rate of return on PBs certainly has me thinking. 

I'm a basic rate taxpayer who will exceed  £1000 in interest in the year. My OH is a non-taxpayer who wont have any tax liability on interest. We haven't contributed to ISAs this year. With over 5% available on a cash ISA and close to that on an easy-access account, my money could go in an ISA and my wife's in easy access. 

Stubod

I would not prioritise them over ISA's, but if you have maxed out on ISA's then probably worth a punt, but only if you can afford to "max out", (or not far off). Also useful as a store for an "emergency fund".

Sg28

With the rate dropping again I will re evaluate in April whether to pull 40k out to split between isas. Then not much point leaving 10k in so ill probably find a home elsewhere for that too. 

OldScientist

eskbanker said:

You can play about with the numbers at https://premiumbondsprizes.com/#20000 - there's no magic number involved, in that the larger the holding and/or the longer it's held for, the closer the return should be to the mathematical average, so check out what the median percentage is for any holding size to see this effect.

The fact that the returns are tax-free can be useful to many, so you'd need to weigh up your net return from the various options, factoring in your other income, assets, marginal tax rate, etc.

That's a much nicer calculator than the moneysavingexpert one at https://www.moneysavingexpert.com/savings/premium-bonds-calculator/ , except that the latter can compare it against best buy savings accounts for different rate taxpayers.

As you say, the variability of winnings decrease with amount invested and time held. The site you've linked to indicates that with a full holding of £50k

In a month 80% of the time you'll win between about £25 and £300 (i.e., a factor of 12 between the lucky and unlucky)

While over a year, 80% of the time you'll win between £1275 and £2625 (i.e., a factor of 2 between the lucky and the unlucky)

To the OP: With £40k, you'll receive interest of £2k (assuming a 5% interest rate). As a high rate taxpayer, after your £500 allowance, you'd pay 40% tax on £1500, i.e., £600 so will receive £1400 after tax (effective interest rate=3.5%).

As a basic rate taxpayer, you'd pay 20% tax on £1k (since the allowance is £1k), i.e., £200 and receive £1800 after tax for an effective interest rate of 4.5%.

The median PB interest rate on £40k is 3.56% (according to the link provided by eskbanker), so, provided you are able to obtain 5%, premium bonds are marginally worth it for a high rate taxpayer, but not really for a basic rate one on the basis of median luck (the calculation also assumes interest rates will stay as they are for the next year). You can redo the calculations for different interest rates.

OldScientist

Ammah45 said:

I have had the full 50K for two years and average a win percentage of 4% a year. 

I have never known anyone win more than the odd £100. Does anyone win the so called bigger prizes? Even 5K? Nevermind 100K.  

We've won £500 but no more than that. There is a long list of winners at https://www.nsandi.com/prize-checker/winners so unless you think NS&I are being economical with the truth*, then yes people do win more, just no-one you know (or who've told you about it).

The site linked earlier in the thread, https://premiumbondsprizes.com/#50000 suggests that someone holding £50k for a year has a 1 in 105000 chance of winning the jackpot (or would expect a jackpot win every 105000 years). Alternatively, if you knew 105000 people who each held 50k premium bonds, then, on average, one of them would celebrate a jackpot win every year. Each year, roughly 40 of them would win a £100000 prize and 80 would win a £50000 prize. Of course, no-one knows that many people!

* NS&I make a profit for the government by borrowing at 4.15% (from those who invest in premium bonds) instead of borrowing at the SONIA (5%), 3 month bill (4.8%), or short gilt rates (1 year is 4.65%), so have little incentive to run a crooked game in this area.

eskbanker

OldScientist said:

That's a much nicer calculator than the moneysavingexpert one at https://www.moneysavingexpert.com/savings/premium-bonds-calculator/ , except that the latter can compare it against best buy savings accounts for different rate taxpayers.

I gave up on the MSE one a long time ago, as it fell into disrepair for months and was increasingly unreliable - it also had (has?) a quirk whereby its presentation of outcomes and their likelihood was very selective and skewed, so the overall summary it showed bore little resemblance to reality.

Comparison with savings interest returns is very simple so isn't a massively useful feature IMHO, and obviously depends heavily on the individual's headroom within their various tax allowances and nil-rate bands, so really needs to be carried out at a personal level for meaningful analysis.