Premium bonds?

london21

Hi All,

I saw a tweet about premium bonds, and I have done some research but am still unsure if it's worth the gamble.

I currently have money in ISA funds and cash savings earning 3.75% and 4.4%, respectively.

I'm considering putting £50,000 in premium bonds, but I'm unsure if I will be entered into the draw starting from February or how it works.

I understand that it's not guaranteed, but I'm tempted by the tax-free aspect, as HMRC taxed me £540 for my savings for the 2023/2024 tax year because I'm a higher-rate taxpayer.

Thanks for any input!

Mark_d

I hold premium bonds as the stable/cash element which balances my S&S ISA portfolio.  Premium bonds are good for me because it's instant access cash that's tax free - and I'm not able to use a cash ISA.

Stubod

..possibly worth a punt if you can afford to "max out". 

NB They have to be in for a full month before they are entered into a draw, but with £50k you can expect to get around the headline rate.

eskbanker

london21 said:

I'm considering putting £50,000 in premium bonds, but I'm unsure if I will be entered into the draw starting from February or how it works.

It's not the best time to buy PBs, as they won't be entered into the draw until 1st March, so you can mull it over and commit by the end of this month (which would still get them into the same draw).

The median (aka 'average luck') return on a full holding is 3.45% at the moment, so that's the most realistic figure to use, rather than the headline rate, which is distorted by the small number of large prizes.  As the winnings are tax-free, this is effectively equivalent to a return of 3.45/0.6 = 5.75% in a taxable account if all of the interest was to be taxed at higher rate, but as you accept, the returns are variable and not guaranteed.

ColdIron

london21 said:

I'm considering putting £50,000 in premium bonds, but I'm unsure if I will be entered into the draw starting from February or how it works.

You must wait a full calender month before the draw so if you put the money in today you would be eligible for the March draw. So most people would transfer the money at the end of this month otherwise it's earning nothing for January

Read this

https://www.moneysavingexpert.com/savings/premium-bonds

london21

Thanks gives me time to decide and enter for March.
Will be towards end of january if going ahead. 

eskbanker said:

london21 said:

I'm considering putting £50,000 in premium bonds, but I'm unsure if I will be entered into the draw starting from February or how it works.

It's not the best time to buy PBs, as they won't be entered into the draw until 1st March, so you can mull it over and commit by the end of this month (which would still get them into the same draw).

The median (aka 'average luck') return on a full holding is 3.45% at the moment, so that's the most realistic figure to use, rather than the headline rate, which is distorted by the small number of large prizes.  As the winnings are tax-free, this is effectively equivalent to a return of 3.45/0.6 = 5.75% in a taxable account if all of the interest was to be taxed at higher rate, but as you accept, the returns are variable and not guaranteed.

Newbie_John

It provides an excitement and that's about it really, tax free aspect too.

Imagine having £50k in a 5% account - you'd get about £200 a month, now you keep £100 and use £100 on lottery tickets - it works the same way although you decide how much to put to chance.

I've been having it for the past year, there were good months when I wanted to open another one for my partner but the last 2 months were £0 and £0.. or shall I say -£200 and -£200?

Up to you, you're not risking invested money but you're risking your interests.

london21

Newbie_John said:

It provides an excitement and that's about it really, tax free aspect too.

Imagine having £50k in a 5% account - you'd get about £200 a month, now you keep £100 and use £100 on lottery tickets - it works the same way although you decide how much to put to chance.

I've been having it for the past year, there were good months when I wanted to open another one for my partner but the last 2 months were £0 and £0.. or shall I say -£200 and -£200?

Up to you, you're not risking invested money but you're risking your interests.

Good point. I'm still considering it, but it seems worth a try.

I have already utilised my ISA allowance for 2024 for FTSE Global index fund.

I have some money in instant access accounts: £100k earning 4.4% interest with Tandem and £85k earning 3.75% interest with Chip.

I am a higher rate tax payer.

The tax-free nature of premium bonds and the option to the maximum of £50k are appealing.

I'm currently exploring where to invest some of the funds, as I have a considerable amount in instant access accounts.

Archerychick

I’d suggest £50k into premium bonds would be a no brainer for you based on you being a higher rate tax payer and already exceeding your psa 

london21

I have £50,000 in Premium Bonds and sometimes wonder if I made a wise decision. Although interest rates are dropping, I won £0 last month. I am a higher rate tax payer. 

• March: £200
• April: £100
• May: £0

I'll see what June brings, but I'm getting close to increasing my savings or investing more in a global index fund.

eskbanker

london21 said:

I have £50,000 in Premium Bonds and sometimes wonder if I made a wise decision. Although interest rates are dropping, I won £0 last month. I am a higher rate tax payer. 

• March: £200
• April: £100
• May: £0

I'll see what June brings, but I'm getting close to increasing my savings or investing more in a global index fund.

The essence of premium bonds is variable returns, so if a few months of far from unusual winnings (equivalent to 4% annualised when grossed up for a higher rate taxpayer) is enough to put you off then they're probably not for you!