Should I cash in my premium bonds?

"Premium bonds don’t seem to offer a reasonable return for my capital. So if I cash my bonds in, what would be the best thing to do with £10,000? I have already used the cash ISA allowance for this year, and have a 7% regular saver account with Barclays."

Ask the Professionals: Philip Pearson, a partner at P&P Invest in Southampton and an investment portfolio specialist, says:

The return from premium bonds 
is closely linked to the base rate as 
set by the Bank of England.

The central bank has reduced the base rate since the end of 2008 to hit an all-time low of 0.5%. This has resulted in the minimum win from a premium bond falling from £50 to £25, and the average return over the course of a year to no better than 0.5%. 

You could improve your return by selecting a savings account where you can achieve, with certainty, a higher rate of interest, but of course you would no longer have the potential opportunity of getting the big win. 

If you’re happy to lock your capital up for a year, then you should consider a fixed-rate bond or a fixed-rate regular savings account. But if you think you might been to 
access your cash, then an internet or instant access account might be better.

It’s worth remembering that the 
interest from a savings account is 
subject to tax unless you’re a non-taxpayer or you’re using your ISA allowance, whereas the returns from premium bonds are paid tax-free.

Moneywise says:

Premium bonds are offered by National Savings & Investments (NS&I) and are open to investment from anyone aged 16 or over. You can, however, buy premium bonds on behalf of your children or grandchildren.
You'll need at least £100 to invest in premium bonds (or £50 if you buy by monthly standing order), and the maximum investment is £30,000.
Although you won't earn any interest on your capital, every month NS&I holds a prize draw with a £1 million jackpot and one million tax-free prizes. Clearly, the more bonds you hold the more chance you have of winning.
By investing your money with NS&I you'll benefit from the government's 100% protection guarantee. Around 23 million people hold premium bonds worth a collective £26 billion.
NS&I describes premium bonds as "a fun, yet serious way of saving, combining the chance of winning tax-free prizes with the peace of mind that comes from knowing your capital is 100% secure".

You can cash in your bonds at any time. 



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