Premium bonds - weird coincidence

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SpokeyDokey

68, & my GP says I will officially be old at 70!
Moderator
Wouldn't it be more like £12160 (£50k + 4.45% = £52,225 in year 1, then 4.45% on the £52,225 for year 2 and so on)?
Makes it sound even better.

Not applicable on this occasion. The interest is 'paid away' annually so no compounding.

Suits us as we have a fair bumber of Bonds all reaching a year marker or maturing in different years.

This means we have to be careful re HMRC rules which state that compounded interest is deemed taxable in the year that the client receives it ie if compounded over 5 years all 5 years interest is taxable on maturity in year 5.

We generally keep our FRB's in Mrs SD's name as she has the full Personal Allowance, the Personel Savings Allowance and the Starting Rate for Savings 'allowance'. But as the number of FRB's that we hold has grown over the years it can, on occasion, be tricky to avoid having to pay any taxes in a particular year, or at least minimising them.
 
OP
OP
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PK99

Legendary Member
Location
SW19
winnings are tax free.

The PB prize fund calculation used to be based directly on National Savings rates

When Darling Gordon was chancellor, one of his (many) stealth taxes was to adjust the Prize Fund calculation to be net of the average income tax that would have been paid on winnings had they been taxed.

So yes winnings are tax-free, but....
 

SpokeyDokey

68, & my GP says I will officially be old at 70!
Moderator
The PB prize fund calculation used to be based directly on National Savings rates

When Darling Gordon was chancellor, one of his (many) stealth taxes was to adjust the Prize Fund calculation to be net of the average income tax that would have been paid on winnings had they been taxed.

So yes winnings are tax-free, but....

I didn't know that - DG was a cheeky bugger for sure.
 
A FRB isn’t really comparable to the premium bond as it does have the same access conditions. Premiums are instantly accessible.

I do understand where you are coming from, you can risk the opportunity to earn £2kpa interest in return for lottery to win between £0.00 and £1,000,000 each month.
 

vickster

Legendary Member
A FRB isn’t really comparable to the premium bond as it does have the same access conditions. Premiums are instantly accessible.

I do understand where you are coming from, you can risk the opportunity to earn £2kpa interest in return for lottery to win between £0.00 and £1,000,000 each month.
Think you mean does not?

Would it not be up to 40% tax on that 2k Interest (If not the on,y savings)?
 

SpokeyDokey

68, & my GP says I will officially be old at 70!
Moderator
A FRB isn’t really comparable to the premium bond as it does have the same access conditions. Premiums are instantly accessible.

I do understand where you are coming from, you can risk the opportunity to earn £2kpa interest in return for lottery to win between £0.00 and £1,000,000 each month.

I understand the accessibility conditions but imo too much is made of this. If that's the only advantage over FRB's then it's a costly, and possibly uneeded, facility at the end of the day.

The real benefit of PB's are their tax-free status of any winnings.

If access is ever likely to be needed for an amount of cash, assuming that no other savings are held, then simply open an Easy Access ISA in parallel. So instead of £50k in PB's hold eg £45k in FRB's (or even Fixed Rate ISA's) and £5k in Easy Access ISA's.

At the end of the day an FRB (as are any ISA's) is comparable to a PB as it is simply an investment, albeit less liquid.

For me PB's are a gamble, albeit with no risk to the initial outlay. Maybe worth a risk if your PB holdings are a small part of your overall investment portfolio but, if they are the entirity of it, I would think that a questionable decision.

We did have 2 PB's between us a while back which we used as a holding facility whilst making some changes to our overall investment 'locations' and there was about £40k in them for about a year or so and we won a couple of minimum prizes. Even with the low ISA rates back then, which we were still averaging 2.21% on, we, in effect, lost out. Not a huge amount of money lost for sure but it underscored my general negativity towards PB's.
 

Fastpedaller

Über Member
I understand the accessibility conditions but imo too much is made of this. If that's the only advantage over FRB's then it's a costly, and possibly uneeded, facility at the end of the day.

The real benefit of PB's are their tax-free status of any winnings.

If access is ever likely to be needed for an amount of cash, assuming that no other savings are held, then simply open an Easy Access ISA in parallel. So instead of £50k in PB's hold eg £45k in FRB's (or even Fixed Rate ISA's) and £5k in Easy Access ISA's.

At the end of the day an FRB (as are any ISA's) is comparable to a PB as it is simply an investment, albeit less liquid.

For me PB's are a gamble, albeit with no risk to the initial outlay. Maybe worth a risk if your PB holdings are a small part of your overall investment portfolio but, if they are the entirity of it, I would think that a questionable decision.

We did have 2 PB's between us a while back which we used as a holding facility whilst making some changes to our overall investment 'locations' and there was about £40k in them for about a year or so and we won a couple of minimum prizes. Even with the low ISA rates back then, which we were still averaging 2.21% on, we, in effect, lost out. Not a huge amount of money lost for sure but it underscored my general negativity towards PB's.

Ahh - but if the £100k win had arrived!!!
 

ColinJ

Puzzle game procrastinator!
I think I will divert my hopeless flutters on national lottery tickets to near hopeless but recoverable PBs

:laugh:
I think I will divert half of the zero interest cash in my Halifax account into hopeless but recoverable PBs. (I would put more in but once I get my winter fuel bill a big block would have to be cashed in again so there doesn't seem much point.)
 

Chislenko

Veteran
For me PB's are a gamble, albeit with no risk to the initial outlay. Maybe worth a risk if your PB holdings are a small part of your overall investment portfolio but, if they are the entirity of it, I would think that a questionable decision.

I think Spokey sums it up perfectly in this paragraph.
 
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