While the rate cut is disappointing for premium bond holders, for most savers it is not worth it even before the cut. If you have average luck and don’t pay tax on savings interest, investing your money in savings is probably the best bet.
In effect, savings pay a constant rate of interest. So if you get the current highest and easiest savings rate of 1.2%, you’ll get around £ 12 interest for every £ 1,000 you save. Although this rate is variable, it offers more certainty than premium bonds, where many saving the same £ 1,000 would earn nothing. In addition, with the premium bond price rate falling sharply, from December onwards, it may be LOWER than the easiest savings rate (depending on the evolution of savings rates over the years. next months).
The main advantage of premium bonds is that the prices are always tax free (they are also backed by the government, which means your money is fully protected – although savings held with any regulated institution in the UK are also protected up to £ 85,000).
95% of people pay no tax on interest on savings because of the personal savings allowance, so the fact that the winnings are not taxable will not make any difference to them. But if you’re one of the 5% of people who pay interest taxes and own a lot of premium bonds, they may be worth it. For this group, tax-free cash ISAs will likely outperform normal savings and premium bonds, but if you’ve maxed out your ISA allocation by £ 20,000 / year and have a lot of premium bonds, you might beat. the returns you get from normal savings. with obligations.
A lot of people often think, “I’m likely to get around 1.4% – soon 1% – and there is a small chance of making a million”. But the main point is that it is not correct. You are in fact likely to get a lot less than 1.4% / 1%, and there is a negligible chance of making a million. If you know this and it’s okay with you, then investing in premium bonds isn’t a bad plan. For more information, see our Premium Bonds – Are They Worth It? to guide.