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Join Which? Money'Is it worth keeping my premium bonds?'
Every week, we help you with your money problems
Michael covers consumer finance matters such as scams, pensions, savings and investments. He enjoys breaking through the excess jargon and simplifying personal finance.
I bought the maximum amount of premium bonds (£50,000) almost a year ago and have won prizes equivalent to what I'd have earned with a competitive savings account.
With recent reports that the odds have decreased, I'm wondering whether it's worth keeping them?
Jonathan, Norfolk
'Returns are never guaranteed with premium bonds'
Michael Tomlinson, Which? money expert, says...
It's good to hear that you've won a decent amount in prizes, as the main downside with premium bonds is that returns are never guaranteed. However, holding the maximum amount means your chance of winning at least one prize a year is all but certain.
The amount of money paid out each month is determined by the prize rate, which did go down in April (from 3.6% to 3.3%), but has now risen to 4.35%.
If you're a higher-rate taxpayer, and have already used up your Isa allowance, premium bonds can be particularly worthwhile
When deciding whether holding premium bonds makes sense, it's important to look at your wider savings strategy.
Putting all your savings into premium bonds means there's a risk of missing out on better returns elsewhere. But if you're a higher-rate taxpayer, and have already used up your Isa allowance (as is your case), it can be particularly worthwhile.
That's because you'll be taxed on interest you earn from non-Isa savings accounts if it's above the personal savings allowance of £500 (£1,000 for basic-rate taxpayers).
However, premium bond prizes are paid tax-free, and you've got a good chance of earning more in prizes than you would in a savings account, once you factor in the tax you'd pay on this interest.
- Find out more: The pros and cons of premium bonds
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