Premium Bonds

[Laughton]

Got quite excited yesterday when I noticed that someone in East Sussex with the same number of bonds bought in the same month as mine had won £10,000.

Brought down to earth this morning when I found it was someone else

Did get 4 x £25 though, so still quite happy.

[PinkDalek]

As we are now on page 22, I suppose there is no harm in repeating https://www.nsandi.com/prize-checker.

2 x £25 for me on a full holding.

[Bouleversee]

1 x £25 on a full holding - ugh! And I really needed something to cheer me up.

[kempiejon]

As we are now on page 22, I suppose there is no harm in repeating https://www.nsandi.com/prize-checker.

Good call, I was thinking about posting the same.
3 x £25, first hit since 3 in August, not the full amount invested but getting there.

[flyer61]

6 x £25 on £80K - 2 off one half and 4 off the other.

[richlist]

I've just realised that the average published payout at 1.4% is really the equivalent of 1.75% for basic rate taxpayers and 2.33% for higher rate taxpayers.

It makes holding premium bonds a bit more attractive for me in these extremely low interest times.

[swill453]

I've just realised that the average published payout at 1.4% is really the equivalent of 1.75% for basic rate taxpayers and 2.33% for higher rate taxpayers.

It makes holding premium bonds a bit more attractive for me in these extremely low interest times.

Except that you have to be getting quite a lot of taxable interest before you actually pay any tax on it - £6000p.a. for basic rate taxpayers.

So I'd say for most people, the premium bond rate of 1.4% (or a bit less if you exclude the unlikely possibility you'll win a million) can be directly compared with the rate on other savings accounts. You can probably get 1.5%+ if you shop around.

Scott.

Scott.

[monabri]

PB wins over the last ~3 years for me & Mrs Monabri. We both hold full allowances. On average - we win ~£50 each, per month.

The mother-in-law has just under the full allowance - over the last 2 years - average is ~£45 per month.

[CryptoPlankton]

I've just realised that the average published payout at 1.4% is really the equivalent of 1.75% for basic rate taxpayers and 2.33% for higher rate taxpayers.

It makes holding premium bonds a bit more attractive for me in these extremely low interest times.

That is the mean payout - given the skewness of the distribution of prizes the median is a better indicator of your likely return. As an extreme, imagine 100 people putting a pound into a lottery where the winner takes all. The average (mean) return is £1, but clearly 99 people are going away empty handed.

According to the MoneySavingsExpert probability calculator the median is currently in the region of around 1.25% (£625 p.a. for a £50k holding):

https://www.moneysavingexpert.com/savin ... alculator/

(Only about 35% of people with the maximum holding get 1.4% or more...)

[richlist]

Thank you for the info'......I'm currently showing a 1.2% return so I'm somewhere near your figure.

A 1.25% payout is worth 1.56% for a basic rate tax payer and 2.08% for a higher rate tax payer......I'll take that.

It's difficult to get 1.5% these days let alone 2%

But the real problem though.....is if I win a million where am I going to invest it ?

[swill453]

Thank you for the info'......I'm currently showing a 1.2% return so I'm somewhere near your figure.

A 1.25% payout is worth 1.56% for a basic rate tax payer

At risk of repeating myself - only if you already earn £6000 per year of taxable interest.

Scott.

[richlist]

I thought there was a tax free savings interest allowance of £1000 for basic rate and £500 for higher rate tax payers. Where is your £6000 figure coming from ?

[mc2fool]

Thank you for the info'......I'm currently showing a 1.2% return so I'm somewhere near your figure.

A 1.25% payout is worth 1.56% for a basic rate tax payer

At risk of repeating myself - only if you already earn £6000 per year of taxable interest.

Not so. The (full) £5,000 starting savings 0% rate only applies for non-taxpayers, i.e. people with other income (earnings, pensions, etc) up to £12,500.

For every £1 of other income above that the starting savings allowance is reduced by £1. So (remembering that there is also a £1,000 personal savings allowance) that means that you can have £12,500 of other income and not pay tax on up to £6,000 of interest. (So, £18,500 in total and no tax at all.)

However, if you have, say, £14,000 of other income you can only have £4,500 of interest before paying tax on it, with £16,000 it's £2,500, etc, etc, and if you have other income of £17,500 or more then you can only have the £1,000 personal savings allowance of interest tax free (until you become a higher rate taxpayer, when it's only £500).

Explanations and examples at https://www.moneysavingexpert.com/savings/tax-free-savings/

One little observed side effect of the starting savings allowance is a 40% tax rate on other income for low earners with reasonable amounts of interest (e.g. pensioners).

E.g. if you have £12,500 of "earnings" (inc. pensions) plus £6,000 or more of interest, or £16,000 plus £2,500 or more, or other such combinations up to £17,500 of "earnings", then for each additional £1 of earnings you will pay 20p on the earnings plus 20p on the £1 of interest that is no longer in the starting savings allowance.

[swill453]

Ah ok, it's more complicated then. The £6000 applies to me, but not everyone.

Scott.

[Lootman]

The (full) £5,000 starting savings 0% rate only applies for non-taxpayers, i.e. people with other income (earnings, pensions, etc) up to £12,500.

For every £1 of other income above that the starting savings allowance is reduced by £1. So (remembering that there is also a £1,000 personal savings allowance) that means that you can have £12,500 of other income and not pay tax on up to £6,000 of interest. (So, £18,500 in total and no tax at all.)

It's nice to be able to earn £18,500 in a year and not pay any tax. But how many people on that low a total income would have the kind of sum that would net £6,000 in interest? Even if you could find an account paying 2% that didn't keep changing the rate, you'd need a sum of £300,000 to generate that interest.

And if you had £300,000 lying around you would surely diversify into shares anyway.

[richlist]

Diversifying into shares might seem to be the obvious thing to do it you are in your 30's of 40's.......but .
what If you were Say 75 years old, perhaps not eh?

[mc2fool]

There's no "surely" about it (at any age). I know plenty of people with that level of savings or more who wouldn't touch equities with a barge pole ("shares can go down you know"), and others who have only "risked" a small %age of their total pot in shares (well, IFA recommended OEICs), for much the same "only put into shares what you can afford to lose" kind of feelings.

[Chrysalis]

You’d be amazed at how many ‘ordinary folk’ have amassed 6 figures of savings in their working lives, and it’s all in cash.
A shame that our financial education is so lacking that so many people don’t understand how to invest in a low cost, relatively safe manner.

Btw I think I will be in the situation of having a low earned income but too much other income to benefit from the starting rate for savings. I should look more closely to see if I can transfer something to spouse to bring it down.

[Redmires]

Back on topic, now it's December, here's our figures for 2019. All three holdings are at the max.

Me - 1.45%
Mrs - 1.55%
Ma-in-law - 1.55%

All slightly above the 1.4% average payout. Not great compared to 2018 (£10k win) but comparable to bank saving rates.

[Mike88]

Back on topic, now it's December, here's our figures for 2019. All three holdings are at the max.

Me - 1.45%
Mrs - 1.55%
Ma-in-law - 1.55%

All slightly above the 1.4% average payout. Not great compared to 2018 (£10k win) but comparable to bank saving rates.

0.6% over the last calendar year for me on an £18k holding. Very poor return but better than the losses made on some Funds.