To ask if premium bonds are better than a cash ISA?

[Wondering001]

My savings have been sat in a cash ISA earning f all interest really over the past couple of years.

I've been looking into premium bonds, does anyone know if it'll be worth while using all my savings to buy premium bonds instead?

Do you have any? Have you ever won anything? Do you have hundreds of premium bonds or thousands?

I saw on the website there's a 1 in 34500 chance of winning £25 each month. Does this mean if someone was to have £34500 worth of premium bonds they'd be likely to win £25 fairly often or am I being dense?

Cheers

@MereDintofPandiculation

The point about an ISA is that once you’ve taken it out, you can’t put it back in. So if interest rates go up, which they may do, you can’t put all your savings back into an ISA, only an amount equivalent to the annual ISA allowance.

You can put money back into an ISA now, the rules changed. But only up to how much of the allowance you originally used.

www.moneysupermarket.com/isas/cash-isa-guide/

"Under new flexible ISA rules introduced on April 6, 2016, if you take money out of your ISA, you can pay it back in without this affecting your annual ISA allowance."

I have c£25k in premium bonds, probably win £25 most months.

@Daisychaincarrot

Google Katy kicker premium bond. She’s got the full £50k allowance and posts about how much her monthly wins are.

I would choose a stocks and shares ISA over premium bonds any day. One year in and I’m £100 up for every £1,000 in it

It's been a good 12m for stocks though. Anything you bought after Feb last year, on average, will be c10% up. It won't always be that way so people really need to do their own research on what the risks are.

I bought an IT in Feb last year that went up over 100%, it's now down to only being up 80% , but another one I bought at the same time is only up 6%, and my Glaxo shares are doing abysmally, and they've reduced the dividend!

I can't remember what the process is for liquidating the bonds but I seem to recall reading over the last year or so that some people had been caught out by being unable to get their money back fast enough when they needed it?

It's quick and easy. There were some website issues last year that you might be remembering but generally they are simple to withdraw. Maybe takes a week.

You’re better putting it into a low risk investment fund. Unless you’re putting 10s of thousands in, you’ll likely get bugger all.

It all depends on what you want your money for - and that's why diversifying your investments is important.

Everyone needs access to ready cash. So you stash some money in low risk, easy access accounts - typically 3-6 months worth of expenses. I used to have this in a cash ISA. Shoved it all into PBs instead last year as interest rates were so poor. I've done ok out of them, but they are essentially a bet. So the more you have, the more likely you are to win, Check out Martin Lewis' calculator before you invest.

S&S isa is definitely the next place to go. Everyone else is right - my returns on this have massively outstripped anything else. But. You have to be in it for the long haul. You could have a dreadful year, so you need to not be reliant on the money - leave it in, and it'll probably recover over time.

So it's not as simple as PBs or an S&S ISA. Stick the money you need quick access to into a savings account or PBs (dependent on how much you have). Only once you've got that buffer do you go for the S&S.

We have in the last year invested £18,000, it is our emergency fund for imminent retirement we need to grow it to £25k, we have won £75 on £18,000.

My DH is risk averse to say the least, in the end I just transferred it to PB , when we won the first £25 I pointed out that it was a darn sight more than the 90 pence First Direct were offering.

He grudgingly admits I am/was right, but is positively gushing to colleagues on Team calls. on the subject.

My DF has the max amount of premium bonds and he averages winnings of about £75 per month.

We have in the last year invested £18,000, it is our emergency fund for imminent retirement we need to grow it to £25k, we have won £75 on £18,000.

You're pretty unlikely to "grow" £7k from premium bonds "imminently". Or from anywhere really, especially if risk averse (which you should be with your emergency fund). Mind you, in £18k, £75 is good going.

As you need the cash in the next couple of years I wouldn't bother with an ISA. I have the full amount in PB and win £25 every month - this month it was £75 - and there's always the chance of a big win. Tick the box for the wins to reinvest (unless you hold the full amount in which case open a separate savings account for them) so your capital increases. When you want it back, it's usually in your bank within 5 days.

I think the winnings for PBs is a bit more than you would expect from a savings account - unless you hit big but you can't expect that.
Money saving expert would probably tell you.
Thing with shares is that they can go up as well as down. I would imagine many dropped in value during the covid year so if you needed to cash in your investment then you might have lost money - they are bouncing back now but there is risk. What is most often advised is to diversify - so savings acc, pbs, isas, property but as it's over a short time choose whatever is best for that interest wise.

I think so. I have the maximum holding and my children have 25k each, and we all win most months...between £25 up to £150 each usually. My mum also has maximum holdings and won £1000 a few months ago!

I was seeing such little return from these amounts in ISAs, it really feels like it's the better low risk option for us.

@VanGoghsDog

We have in the last year invested £18,000, it is our emergency fund for imminent retirement we need to grow it to £25k, we have won £75 on £18,000.

You're pretty unlikely to "grow" £7k from premium bonds "imminently". Or from anywhere really, especially if risk averse (which you should be with your emergency fund). Mind you, in £18k, £75 is good going.

At 1% which I think it’s the average return for PB. (But somewhere between 0.5-1%).

It will take about 30 years to get from 18000 to 25000.

@Wondering001

Is a stocks and shares ISA good for money you need in about 2 years? I always thought they were too risky unless you were looking to invest in them long term?

I have a s&s isa .,when the pandemic hit it's value plummeted. so only put money in if you are sure (ish) that you won't be forced to cash in at a bad time. of course nothing is certain.

premium bonds I hold around 30. .I have won 25 every month this year.

@WaterBottle123

Definitely get a stocks and shares ISA. Mine has made ten percent in 8 months

But if anyone had bought in 2019 and had to access their money in March to May-ish last year would have been looking at losses of 30-40%.

The recovery after that up to now has been good, but who knows how it's going to be going forward. The pandemic isn't over yet and who knows how it's going to play out. If the OP knows she might need her money in 2-3 years, it's a hell of a gamble to put her money into the stock market.

OP, I have just under £34k of PBs and have won 8 x £25 prizes this year. Last year my return on PBs was 6% but I did really well as I won £1000 as well as a few £25 prizes. In 2019 I got a return of 2%.

You are correct that if you have £34.5k of PBs you will average 1 prize a month, but the amount of prizes follows a normal distribution and across a group of people with that holding, some will win one prize, some will win none and some will win more than one.

It's probably more correct that you'll win around 10-12 prizes a year, but some months you'll win nothing, others you'll win more than £25. But you will almost certainly get a better return than 0.1%.

It doesn't have to be an ISA.

Fewer than 5% of people pay tax on interest anyway. Because the personal savings allowance lets most people earn up to £1,000 in interest without paying tax on it.

If you're not going to earn £1000 in interest you won't pay tax.

Find a slightly better savings account if you can't. I took mine out of an isa and put it in a savings account with a slightly better rate. I get about £12 interest a month whereas I don't think I'd win £25 from premium bonds every other month.

Not sure it's been mentioned, but one detail to be aware of with PBs is that their numbers don't go into the prize draw instantly. So you don't want to be taking money in and out of them on very short timescales eg just a few months. That would reduce your odds a bit.

Both my DH and I have the maximum £50,000 each in premium bonds. In the 6 months since opening, we have won over £500. I have won the most with £125 this last month. It’s not great, but with no risk, we are happy to leave it there. It’s a shame the winnings cannot be added if you have the maximum amount, as winnings go into current bank account.

I put £25k in PBs in January and have won £125 so far. A good option for me at the moment as we are in the process of house renovations and I’m not sure how much of it we’ll need so can’t tie it up for long.

I opened a premium bonds account in January (so first draw was February) and I’ve won 4 lots of £25 since then

@CrouchEndTiger12

It doesn't have to be an ISA.

Fewer than 5% of people pay tax on interest anyway. Because the personal savings allowance lets most people earn up to £1,000 in interest without paying tax on it.

If you're not going to earn £1000 in interest you won't pay tax.

Find a slightly better savings account if you can't. I took mine out of an isa and put it in a savings account with a slightly better rate. I get about £12 interest a month whereas I don't think I'd win £25 from premium bonds every other month.

Excellent point - though PBs may still compete well with many normal savings rates.

ISAs are really useful for more substantial long term investments - cash ISAs for bleeding into S&S to even out the lumps and bumps in the markets for instance. For us they're part of our retirement planning.

Stocks and shares ISAs are much better than cash ditto, but maybe you have your quota already.

From experience, with £34.5k of PBs I’d think you’d win a fair number of £25s, maybe a bigger one if you’re lucky.

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

www.moneysavingexpert.com/savings/premium-bonds-calculator/

I’ve had £16k in PB for a year and won nothing ☹️

@entrophynow sorry for being thick, what is an income Trust?

@ErrolTheDragon

Not sure it's been mentioned, but one detail to be aware of with PBs is that their numbers don't go into the prize draw instantly. So you don't want to be taking money in and out of them on very short timescales eg just a few months. That would reduce your odds a bit.

Good point, that's something I always forget.

Fewer than 5% of people pay tax on interest anyway. Because the personal savings allowance lets most people earn up to £1,000 in interest without paying tax on it

It's probably quite a bit less than 5% considering that the most interest you could get would be about 1%, which would mean that you'd need to have over £100k in cash savings to exceed the PSA. Or if the OP is a higher rate taxpayer, the PSA is £500 so would adjust accordingly.

So kind of makes cash ISAs almost redundant, especially as for a long time, the interest rate has been lower than standard instant access accounts, although this might be changing a little now.

OP another option would be to look at short term fixed rate accounts, because you can get around 1.1% interest.

With PBs, you're basically gambling this guaranteed interest. You might get a better payout, you might not. Depending on how much savings you have, you could split between PBs and the best savings account you could find, bearing in mind you've a lot better chance of getting close to the average 1% PB payout the more you have, eg more than around £10-20k. Below that, probably just stick with a savings account.