NS&I to cut Premium Bond prize rate to 3.6% from August – are they still worth it?

MSE_Molly_G

NS&I will cut its Premium Bond prize-fund rate to 3.6% from 3.8% for the August draw and beyond. But this rate was already lagging behind interest rates on standard savings accounts – so if you have Premium Bonds, you may want to consider moving your cash to an interest-paying account.

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NS&I to cut Premium Bond prize rate to 3.6% from August – are they still worth it?

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subjecttocontract

The tax free 3.6% is equivalent of 4.5% for a basic rate taxpayer and 6.0% for a higher rate tax payer.

talexuser

Worth it for a higher rate taxpayer who has maxed isa and pension for the year, and has all the best monthly savers already.

MoneyMan01

All relative. Definitely for those in the higher tax bracket(s), but maybe not if you have less. It's all relative to the individual's circumstances and viewpoint. No right or wrong answer really.

EthicsGradient

If you just consider the chances of winning prizes of £1,000 or less (over 5 years, the maximum holding of £50,000 has about a 30% chance of winning one prize of that or more; or 66% of £500 or more), the effective interest rate is 3.24% (3.10% if you just consider the £500 and below prizes). Which is fine for higher rate payers, but not really for basic rate payers, apart from the 'game' aspect.

slinger2

Decidedly marginal for a basic rate taxpayer, unless you want the lottery/betting aspect. As noted it's effectively paying 4.5% for those who are paying tax at 20% on their interest.

It'd be interesting to know how many of the million+ folk who have the maximum holding are actually higher rate taxpayers.

Frequentlyhere

subjecttocontract said:

The tax free 3.6% is equivalent of 4.5% for a basic rate taxpayer and 6.0% for a higher rate tax payer.

Only if you equate the prize rate with an interest rate. That 3.6% has to pay for the big winners too, so unless you're very lucky then your rate is probably sub 3%...

subjecttocontract

slinger2 said:

Decidedly marginal for a basic rate taxpayer, unless you want the lottery/betting aspect. As noted it's effectively paying 4.5% for those who are paying tax at 20% on their interest.

It'd be interesting to know how many of the million+ folk who have the maximum holding are actually higher rate taxpayers.

For many who are basic rate payers, there will be some who won't realise they can get a better return elsewhere. But virtually everyone who holds them is persuaded by the chance of winning

InvesterJones

talexuser said:

Worth it for a higher rate taxpayer who has maxed isa and pension for the year, and has all the best monthly savers already.

There are other options that might be more suitable for those if they can put their money away for a bit.

J_B

subjecttocontract said:

For many who are basic rate payers, there will be some who won't realise they can get a better return elsewhere. 

But virtually everyone who holds them is persuaded by the chance of winning

Indeed

We had 15k each and over the last two years we've 'earned' sub 3% - we don't really pay much tax so your first comment is very apt.

Your second comment is akin to me renewing my Stoke City season ticket each year ... 'it's the hope that kills you'! 

subjecttocontract

We have had some £1000 prizes over the years but generally our annual returns have been made up of numerous smaller prizes leaving us below the official published rate. But we're not interested in cashing in and paying even more tax. My view is it would only take one decent prize win to increase our 5 year average return quite substantially. Like many other we're prepared to forgo a slightly better return in exchange for the fun the monthly draw provides.