Is premium bonds a tax efficient saving instrument?
Tax efficient – yes because any ‘prize’ is tax free. That doesn’t make them a good investment because the pay out is such a small percentage of the total pot of money – something like 2% overall. That is a pathetic rate and you have little chance of getting even that. How it works is that you buy premium bonds of a certain value. Each bond has a unique number. Each month ( I think) a random number generator generates a selection of numbers to win a prize. Most are about £50 but one prize will go as high as £1,000,000. On balance, you are better off putting your money into a normal savings account and paying tax (if you are a tax-payer) as it will average more than Premium Bonds are likely to pay out. The good thing is that your money is safe in premium bonds. The bad thing is that your money is losing value all the time because you get no interest on savings and prizes average much less than inflation.
