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

talexuser

InvesterJones said:

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

Well fixed term has better rates than easy access, apples aren't pears.

talexuser

I can give some actual real world prize results for self and partner over several years both with max 50K using bonds as easy access emergency cash. Obviously the return has to be seen compared to savings rates at the time.

2019 base rate 0.75% myself 1.15% other half 1.75%

2020 base rate 0.1% myself 1.7% other half 1.1%

2021 base rate 0.1% myself 0.65% oher half 0.9%

2022 base rate ave ~1% myself 1.25% other half 1.05%

2023 base rate ave ~4.25% myself 3.15% other half 4.4%

2024 base rate ave ~5% myself 3.55% other half 4.15%

2025 so far 6 month result myself 2.4% other half 2.15%  

InvesterJones

talexuser said:

InvesterJones said:

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

Well fixed term has better rates than easy access, apples aren't pears.

Indeed, and other options like gilts.

masonic

talexuser said:

I can give some actual real world prize results for self and partner over several years both with max 50K using bonds as easy access emergency cash. Obviously the return has to be seen compared to savings rates at the time.

There was a period of time in the late 2010s, extending into the early 2020s, where PBs really were exceptional value compared to savings rates, but savings rates were also way ahead of base rate.

When base rate was 0.75% in 2019, the best 1 year fix was about 2% and the best easy access account was about 1.5%

When base rate was 0.1% in 2020, the best 1 year fix fell to about 1.2% and the best easy access account was about the same.

And in 2021, things were about the same for a 1 year fix, but easy access dipped below 1%.

Savings rates remained about 1% ahead of base rate until after the rapid rises in 2023.

SnowMan

masonic said:

talexuser said:

I can give some actual real world prize results for self and partner over several years both with max 50K using bonds as easy access emergency cash. Obviously the return has to be seen compared to savings rates at the time.

There was a period of time in the late 2010s, extending into the early 2020s, where PBs really were exceptional value compared to savings rates, but savings rates were also way ahead of base rate.

When base rate was 0.75% in 2019, the best 1 year fix was about 2% and the best easy access account was about 1.5%

When base rate was 0.1% in 2020, the best 1 year fix fell to about 1.2% and the best easy access account was about the same.

And in 2021, things were about the same for a 1 year fix, but easy access dipped below 1%.

Savings rates remained about 1% ahead of base rate until after the rapid rises in 2023.

This is the comparison between my (average) savings rate and the premium bond prize fund rate over time. The median return on premium bonds will be less than the prize fund rate of course, but you are getting something for that, the chance of winning big. 

But it's perhaps costing someone just under £500 a year to hold premium bonds rather than have the money in best buy savings accounts at the moment (50,000 x 0.01), if you don't pay tax on savings. So perhaps can think of it as a £500pa entry fee to enter the draw (if you don't pay tax on savings). I've got 1K in premium bonds so my 'entry fee' is £10pa, but I have only a very small chance of winning big.

 

boingy

PBs are part of my "pay no tax" strategy although my holding will be reducing over the next two years as I shift more into ISAs (assuming the govt don't mess with ISAs...)

And, yes, it's fun to see what I win each month. I've just had two good months in a row so my 25/26 winnings are comfortably above base rates but, of course, that is unlikely to continue.

n15h

I'm on HR and my basic calculations are that £50K in a Atom bank account 4.75% (variable) would give £2375 interest pre-tax and £1625 net interest after tax. This works out to be 3.25%. The PB 3.6% rate looks more attractive, but its not guaranteed and based on average luck.

I'm hopeful for a big win on PBs 1 day (a single win of more than £500) but in the mean time, I'll consider whether it is better to move to a savings accounts that gives some guaranteed interest (even if it is variable). The battle in my mind of 'hope' vs reality.

Edit: ISAs already maxed out for the year

InvesterJones

n15h said:

I'm on HR and my basic calculations are that £50K in a Atom bank account 4.75% (variable) would give £2375 interest pre-tax and £1625 net interest after tax. This works out to be 3.25%. The PB 3.6% rate looks more attractive, but its not guaranteed and based on average luck. 

Actually the prize rate is not the same as 'based on average luck' - the prize rate is skewed by a few very big prizes. The average luck return is quite a bit lower.

talexuser

masonic said:

Savings rates remained about 1% ahead of base rate until after the rapid rises in 2023.

Yes, the difference is paying 40% tax on interest, as in my first post, most advantageous once isa, pension and best buy regular savers are already used up.

Nebulous2

boingy said:

PBs are part of my "pay no tax" strategy although my holding will be reducing over the next two years as I shift more into ISAs (assuming the govt don't mess with ISAs...)

And, yes, it's fun to see what I win each month. I've just had two good months in a row so my 25/26 winnings are comfortably above base rates but, of course, that is unlikely to continue.

I'm beginning to think PBs are part of a pay more tax strategy for me. 

I entered retirement with a nest egg I intended to draw down to carry me through to state pension age. As I had planned for some fairly chunky expenditure, at indeterminate timescales, we put most of it in premium bonds. 

I fairly quickly decided retirement wasn't for me (yet) and took a part-time job. 

I've been putting quite a bit of my earnings in a SIPP, while spending from the PBs, and have been pleasantly surprised that our net position has been reasonably stable, with expenditure from PBs being matched by increased funds in the SIPP. 

I'm gradually realising that the two are not the same. I can do what I like with the PB money, but 75% of the SIPP money will always be taxed. If I try to withdraw a chunk, for a roof repair or something, there's a risk of hitting higher rate tax.