A safe bet?

By FMB on 

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The government has announced that it is going to lower the Premium Bond rate from 1.4% to 1.3% from May.

For many years it was a given that it was worth having some investment in National Savings. The tax treatment was favourable and they were a safe haven for your money. The return of 1.4% seemed fairly comparable to many deposits.

Several things have changed:-

  1. They are certainly still safe, the Government is unlikely to go bust. However, since the Financial Services Compensation Scheme (FSCS) covers each £85,000 you hold in any given institution this is hardly the bonus it was. You can only hold up to £50,000 in Premium Bonds anyway.
  2. The interest is untaxed. Well, since the £1,000 threshold on interest has been introduced you would need to have significant income from interest to worry about this. Most people who have that kind of money don't need to worry about low risk investments anyway and would be looking for better returns.
  3. Which leads me nicely to the cut. Don't be misled, there is no "1.3% interest rate" it's a notional average return. My husband has had Premium Bonds since he was a teenager. We have been married 15 years and he has certainly never had a prize during that time! Although the prize pot might be 1.3% of the total investments, it certainly doesn't mean you will average a 1.3% return. For a start, there is the lottery element and it is very much skewed by the fact of the minimum prize money. You can read Martin Lewis's very complicated blog about how to calculate the probability of winning.

So is NS&I a useful place to put your money?

Well, Martin has got some clever brains on this to try and work it out. Basically, unless you are a higher-rate tax payer with signicant savings, it isn't going to be worth it.

Just to finish with some context - the odds of each one of your Premium Bond numbers being selected for the 2 drawn each month to win £1million is 1 in 42,673,184,853!

If you compare that the the EU millions or National Lottery…

1 in 139,868,160 (EU)
1 in 45,057,474 (UK)

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