Premium bonds as savings

tweezerman388

Hi I am selling my flat and I will have around 20k equity on my hands. I intend to use this as a deposit for a new property within the next 2 years. At the moment buying is not an option as my partner, who i will buy with, needs to get his credit rating ok (we will use some of the equity over and above the 20k to clear his debts) and we are having a baby soon so i wont be working for 6 months at least.

Someone told me that premium bonds are a good way to save as with such a large sum invested the monthly returns , as winnings, are good. Also it is important to be able to withdraw all the money with a month or 2s notice.

has anyone any experience of doing something like this, or words of advice?

many thanks.

deemy2004

Premium bonds are are good as a small part of your portfolio.. and moreso for higher rate tax payers.

They are definetly not good to put the whole of your savings into.

Perhaps you should put £2k into premium bonds and the other £18k elsewhere.

I currently have approx 2% of my portfolio in Premium bonds, and they are the poorest part of the portfolio on performance terms.

sneekymum

You could just put it in an account at 5% and then spend 1% of your interest on lottery tickets. That would take your interest down to about the same returns as a Premium Bond if you're a basic rate taxpayer.

But you might feel stupid doing that. Well - I would. Which is why I've got no Premium Bonds and I've never bought a single lottery ticket.

Though that's not to say I wouldn't accept a gift of cash from a close friend or relative who struck lucky.......

GDB2222

As a 16 year old with a summer job, what would you recommend me to put £200/£250 into to make me some cash without being too risky?

trademark

the halifax 10% saver account

Reaper

tweezerman388 wrote:

Someone told me that premium bonds are a good way to save as with such a large sum invested the monthly returns , as winnings, are good.

Not really, when you have a lot a premium bonds it just seems good because you get prizes most months. However the average payout is 3.25% tax free. That is equivilent to 4.06% for a basic rate tax payer or 5.42% if you are on higher rate.

So just about worth it for a higher rate tax payer (after ISAs etc used up) but no one else as you can get better in a savings account. If you do it, do it for fun rather than profit.... and the hope you will get one of the 2 jackpots of course.

Art_peabody

I presume the extra £1 mil jackpot will mean our likely returns on premium bonds will reduce! Given I doubt I'd ever be lucky enough to get the big one!!

Nick_C_4

Art_peabody wrote:

I presume the extra £1 mil jackpot will mean our likely returns on premium bonds will reduce! Given I doubt I'd ever be lucky enough to get the big one!!

That depends on what you mean by 'likely'. I suppose that if the rate of return stays the same (3.25%) and more high-value prizes are given out, then that means less lower-value prizes will be given out. So, if you take it as a given that you won't win a million, then yes, your returns are likely to be lower. But in fact your chance of winning a million has increased (there are now two million prizes not one), so that would be an incorrect assumption.

There's a load of entertaining nonsense on various chat forums from conspiracy theorists about premium bonds being 'fixed' just because they haven't received a 3.25% return. Despite being convinced that they're being defrauded, these people still hold onto their bonds, though. While your capital is safe, in essence you're gambling with the interest you could be earning on it elsewhere, in the hope of getting a higher return. Some do, some don't, which is why deemy and reaper suggest doing it with small amounts (in terms of your overall portfolio) for fun. And I agree.....

MJSW

Nick_C wrote:

I suppose that if the rate of return stays the same (3.25%) and more high-value prizes are given out, then that means less lower-value prizes will be given out.

But the rate of return was actually increased in conjunction with the extra £1m prize - from 3.2% to 3.25%. There are approximately £26 billion Premium Bonds currently in issue - so the extra 0.05% 'interest' therefore equates to an extra £13m in prizes per annum, which more than covers the extra 12 £1m prizes they will be paying each year. This may of course be a complete coincidence, but the figures seem too close for this to have been an accident, particularly as the increased return was announced at exactly the same time as the extra £1m prize.

nrsql

yep - most of the extra goes on the £1m.
Note that 3.25% is a bit misleading too. You might get a large prize but if you assume you just get the smaller prizes your return will be less - just the percentage allocated to the smaller prizes. So you will either do very well or more likely a fair bit less than 3.25%.

£50-100 is 89% of fund so about 2.89% unless you're lucky.

Milarky

nrsql wrote:

yep - most of the extra goes on the £1m.
Note that 3.25% is a bit misleading too. You might get a large prize but if you assume you just get the smaller prizes your return will be less - just the percentage allocated to the smaller prizes. So you will either do very well or more likely a fair bit less than 3.25%.

£50-100 is 89% of fund so about 2.89% unless you're lucky.

I've been banging on about this point for ages. I'm glad to see that others take the same view. Whenever challenged, National Savings makes the same lamentable excuse that the 'average' IS the 'average' - 3.25%. If anyone other than the Treasury had set up a 'get rich' scheme based on giving out one or two very large prizes and a lot of smaller ones they would not get away with this form of misrepresentation. The essence of Premium Bonds ins't that they are a 'rip off' - they're not that bad - but they do market themselves on the fallacy of composition [i.e. ''we [u]all[/u] win a share of the £1m prize!'']