Premium Bonds

[Ric.ror]

I just wondered what the general views were on these.
I have a friend who wants to invest a cosiderable sum for a year to see if he can make a better return than a Build Soc (10K +)

[Ethel]

Assuming your friend is a tax payer at basic rate, he would expect around �500 interest on �10k in a building society account. He could get a little more with ISAs, bonds and so on.

If he is prepared to lose this for the gamble - then yes, it's fine.

[BigMac]

If you have the maximum number of Premium Bonds (�30k) then NS&I estimates that you should win 15 prizes in any one year. This is because the odds of winning any one prize are 24,000:1.

You may win nothing, of course.

So if you have a �30k investment and average luck, winning only �50 each month, you would get a minimum 'return' of �750. And you might win �1m, or �5k, or �25k etc

The potential returns on a �10k investment would not be as good.

[Ric.ror]

So what amount would you need to invest

[BigMac]

Depends on your (friend's) needs.

The golden rule should be to pay off any outstanding debt before making investments as the amount you pay on debt interest is almost always significantly higher than the amount you might receive in credit interest. Tackle them in order of cost - store cards then credit cards and so on.

Another way would be to 'ofset' a mortgage if she/he has one - again, you don't get interest on your credit balance but you reduce significantly your mortgage interest payments and/or term.

Assuming no outstanding debts, If she/he has not already invested in a mini-cash ISA then that should be the priority. �3k now and again in the new tax year (possibly two x �3k if she/he has a partner) gives you instant access to the cash and tax free interest on the investment.

The examples I gave for investment in Premium Bonds come from the NS&I website (www.nsandi.com). If you/your freind doesn't need the money now and is prepared to forego the guaranteed return from an ISA/building society then she/he can invest as much as she/he wants.

I refer to my earlier point: YOU MAY WIN NOTHING; but with average luck you might win, say, �250 in a twelve month period.

[Ric.ror]

Well he is a pensioner with a considerable sum in the Build Soc and also has 23K invested and has lost money on that.

[BigMac]

He should speak to an independent financial adviser - as he's already a pensioner he needs to consider buying an annuity at age 75 and the possibility of nursing home (or similar) fees, as well as inheritance tax implications if he has family.

This site is great for a quick fix or a few ideas but there is no substitute for proper advice when ALL the relevant factors can be addressed at the same time.

[dzug]

The probability is that on average he will do worse with premium bonds than with a Building Society.

There is a very small chance that he will do considerably better; also a chance that he will do considerably worse.

Depends on what his real objectives are as to which he should do.