Premium bonds question

[Riddlediddle]

My 5 year old ds has held £5k of premium bonds for the past 5 months and has already won 2 x £25. With interest rates being so terrible at the moment I'm thinking of transferring another £10k of his savings into premium bonds (leaving £3k in his savings account) so he has £15k of premium bonds in total to hopefully get a better ROI% than his current savings account. The plan is to then move some of these back out into a savings account when (if!) interest rates pick up again. I realise premium bonds winnings are based on averages (and luck!) but do you think this is wise? Also if you hold £15k of premium bonds how much have you won in a year?
Thanks :-)

I 've held between £9k- £20k in the last 10 months and have won £1150 (lucky). I'm toying with transferring another £20k in from a Santander account which only earns me £20 a month interest after fees. I get your thinking!

You'd only be foregoing about £8 a month in interest (if savings account pays 1%). PBs are fun and there's always the thrill of maybe winning a big prize. I'd do it (or buy shares. A 5 year old probably isn't going to need the money for a long time).

Thanks ladies. As long as i reinvest any winnings then his money will still be growing. Plus I do like the fun element - he has to be in it to win it right! Let the daydreaming about what we'd do with £1million commence......

You’ve been lucky to win 2 x £25 in five months. With £5000 invested you’d expect to win that much in a year, so just be aware that you could go months and months without getting a penny. I’ve won the same amount in the five months I’ve had my premium bonds, but that’s with £16,500 invested, so not a great return so far.

The thought of winning a cash prize is very exciting though, so it does encourage me to save more and more each month to improve my chances, so premium bonds are beneficial for me in that way. With the rubbish interest rates at the moment I’d be less inclined to save so much otherwise.

The more you have in premium bonds, the more likely your effective interest rate will match the overall average for the product (about 1-1.5% I think). You have been well above average on the luck scale so far.

In fact, one of those prizes is actually mine, because I also have a few thousand in PBs for a couple of years and have not won a penny.

Full analysis of the ins and outs of PBs can be found here.

Unless you're very lucky indeed, you won't get the same return as you would in a decent savings account. Premium bonds are generally a worse choice in terms of the 'interest' you receive, but their benefit is that the money isn't locked away and can be accessed any time (so it's particularly good for short-term situations where money needs to 'sit' somewhere for a few months before going to its intended home) and of course there's the excitement of the 'win' and the chance of the jackpot.

If you have a chunk of money that isn't going to be used for some time, you might want to look at fixed-term saver plans that have higher interest rates. For example, you can get around 2% on one-term deals, going up to 2.5% on four-year deals, which will end up as a decent chunk more than you can reasonably expect to get on PB. There's actually a PB calculator on the MSE site that shows you the various permutations, based on differing levels of 'luck'.