Time to ditch premium bonds? 14 need-to-knows

The rate is being cut, they've lost their 'tax-free' advantage for many, and they're no longer much safer...

Line up everyone with £1,000 of premium bonds in order of their year's winnings, and the person halfway along would have won... not a penny! In fact, you'd need walk past almost two-thirds of the line until you hit the first £25 winner. Premium bonds are the UK's biggest savings product, but their advantages have plummeted. So should you ditch 'em? Martin's done a new statistical analysis of the 14 things every premium bond holder needs to know, here's a lucky dip...

Premium bond prizes are tax-free, but now so are most savings. Since the launch of the personal savings allowance (PSA) on 6 April all savings interest has been paid tax-free, and you only need pay tax if you're a basic 20% rate taxpayer earning over £1,000 interest a year (higher 40% rate £500, additional-rate get no allowance). So premium bonds' tax-free status isn't a biggie for most.The rate is being cut but you won't win that much anyway. The current prize rate is 1.35%, but it's being cut to 1.25% in June. Yet actually the way it works is: to pay every big prize, lots of people have to earn far less than this prize rate. You can use our unique premium bond win predictor which shows what you're truly likely to win (underneath, to calculate it, it's maths so hard it cuts diamonds). And far more details of how it works in the true premium bond interest rate.Their big advantage used to be 100% safety. Premium bonds are run by Govt-owned NS&I, so they're 100% safe. But now all UK-regulated savings are protected by the Financial Services Compensation Scheme up to £75,000, and the premium bonds max is £50,000, so the advantage is diminished. See are premium bonds safer?How does this compare with savings? The top easy-access savings pays 1.45%, save £20,000 and you'll get £290 interest, assuming it's tax-free. Your chances of premium bonds beating it are just 1 in 4. Yet Santander 123 pays 3% at that amount, and the chance of bonds beating that is less than 1 in 40. Full analysis: premium bonds vs savings.So, should anyone bother with premium bonds? In a nutshell they're best for higher-rate taxpayers who've used up their PSA, ISA allowance and top bank account savings. Though of course this is all based on average luck; and a lucky few always beat the average, so you have to factor that in. For far more read the detailed premium bonds - are they worth it? guide.

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