Premium Bonds or ISA?

Mikeeee_2

Roger175 said:

Do you already have a Lifetime ISA (LISA)? If not you have missed a huge opportunity. You can only add £4k per year, but HMRC automatically add 25%. If you don't already have one, you need to bear in mind that it needs to have been open for 1 year before you can use it to buy a property, if you're looking to buy in the next year then it's too late, if not then get signed up.

Exactly my first thought. Getting an instant 25% return on £4,000 of it is an obvious thing to think about. Then everyone can split hairs over premium bonds Vs ISAs or a combination of all.

scott_bristol

Exodi said:

Middle_of_the_Road said:

You've had a decent return from the premium bonds, so I would be inclined to continue and maybe make a decision based on how they perform over the coming months.
Savings rates may well be lower going forward, many have been reduced recently, but not heard anything about a premium bonds rate reduction.
Lottery tickets would have a very low probability of making a decent return, and your stake being lost following each draw.

Sorry, I disagree with much of your post. They've experienced a completely average return from premium bonds and in any case I think it's pretty bizarre to use someones 'luck to date' as a metric to base ones future financial decisions.

Likewise, saving rates being lowered in response to future BoE rate decreases will inevitably affect premium bond rates going forward.

Lastly, the friend of the OP is fair with their analogy to lottery tickets, because while you're right your stake is lost following each lottery draw, the same thing essentially happens with premium bonds by forfeiting interest payments.

I could, for example, slap the OP's £37k in 2x Trading 212 Cash ISA's with my wife paying 5%, generate £154.48 in interest every month, and withdraw that to buy lottery tickets or put in a fruit machine. If I don't win, I am left with £37k, just like the OP.

In my opinion, Premium Bonds are only worth considering for people that have already maxed their ISA allowances and will exceed the personal savings allowance OR for people that use it to satisfy an itch of theirs. But this is a money saving forum, not a casino, so I would expect the default advice to be taking the higher guaranteed rate, rather than "keep playing, it might land on red". But I know a lot of people on this forum enjoy a flutter on premium bonds.

Personally I think the OP's friend is right on the money (though don't buy lottery tickets at all, it's a tax on people who are bad at Maths).

scott_bristol said:

I love the kind of excitement of viewing the NS&I app each month to see if I win. I just keep thinking to myself - what if I take the money out, and that could have been the month where I win big?

You won't. The lottery preys on this mentality (e.g. "you've got to be in it to win it"). It capitalises on a vulnerability that we as a species are incredibly poor at comprehending very large numbers.

Thank you so much for this. I'm going to withdraw it all, I'll use Trading 212's 5.1% ISA, and I'll put the rest into a savings account.

I'll wait until the 2nd Nov NS&I Bonds prize draw first, just as it's not that far off, and then I'll transfer it all out.

Thank you so much for your detailed reply!