Is it time to ditch your Premium Bonds? | Free Wills | How to lend to friends & family

The Martin Lewis Podcast

The episode explores whether savers should move away from Premium Bonds in favor of higher-interest savings accounts or ISAs. Martin Lewis a

Key takeaways

• Premium Bonds are most effective for high earners who have already exhausted their tax-free savings allowances.
• For children, Premium Bonds are often a poor choice as the probability of winning is extremely low compared to potential growth in index trackers.

Main topics

• Premium Bonds vs Savings Accounts
• Lending money to friends and family

Notable quotes

Is it really a loan or is it a gift you hope might be repaid?

Conclusion

Viewers should regularly audit their savings products and legal docume

Transcript preview

Speaker 1 (0:00) This BBC podcast is supported by ads outside the UK. Speaker 2 (0:35) An Israel-bound plane was forced to make an emergency landing after an attack on the pilot. So what actually happened on board? I'm Tristan Redman, host of the Global Story podcast from the BBC. On arrival, witness accounts described a stabbing in the cockpit of the plane. The Israeli prime minister called it an extremely severe security incident, which could be crucial weeks before a general election in Israel. For more, listen to the Global Story on bbc.com or wherever you get your pods. Speaker 1 (1:08) Today is a great day to do a comparison. You have a 30 % chance of winning more than a savings account. It is so much better they're not in the same category. Is it really a loan or is it a gift you hope might be repaid? I'm about to reveal something that they never tell you here, Age. Speaker 1 (1:26) Hello, I'm Martin Lewis and this is the cunningly named The Martin Lewis Podcast. I do wonder what that's going to be about. And this is our big topic episode where each week we lead on one main subject to help you save. Usually much of it comes from my BBC Radio 5 live show with Adrian Charles, but there's also bonus money saving tips and tricks for you lucky, lucky podcast listeners. In today's episode, is it time for you to ditch premium bonds? They're the UK's most popular single form of savings with over £136 billion held in them. The prizes are tax-free. It's a government-backed financial institution. All sounds good, but the irony is it's often the wrong people who have them. So I'm going to go through who they're good for, who they're bad for, the alternatives, and how to check if you're due part of the over £100 million in unclaimed prizes. Then, the tellers. Have you lent money to family or friends? Did you charge interest and how did it go? I'll also give you my top tips if you're going to do it on how to do it most effectively. And this week's Money Mastermind is all about what happens to your money when you die. We'll see if Adrian gets it right. But regardless, I'll run through why if you haven't got an up-to-date will, this is the moment. As there are three free, it's not easy to say, three free or cheap will charity schemes on now. Play the theme tune. Speaker 3 (2:58) Let's start by having a little rant about something not to do with finance or money really, but just something which drives me nuts and I read this week has driven you nuts as well. Go on, talk us through it. This is an absence of headphones on a train. Speaker 1 (3:16) So, yeah, it's funny. I did this post on Sunday. I was on a short train journey with Lara and Safa, my wife and daughter, and we'd sat in a train cubicle. And I did this post, I have to say, Adrian, a little bit of frustration from me. I did this post explaining what happened. It is literally the biggest post I have ever done on social media. I spend my life providing useful information and usable information. But this one on Facebook alone had 11 million people viewing it. It's just off the charts. So basically, it was a packed train and we'd got on. And as I got on, I'd noticed some people moving. They'd started moving. And then we sat down. We wanted a seat with the table because we were there as a family. And across us, over the other aisle, was a couple who seemed to be alternatively playing their social media videos on full volume. Now, I'd assumed once the train gets going, they would stop. It was nothing like that. They didn't. It kept playing at full volume. I was getting a little bit frustrated, but trying to carry on. I was just catching up on a bit of work because we were waiting to go. I'm not going to try and identify these people or tell you where I was going because it's not about the individual. After about 20 minutes of this, the woman's phone, she started playing something about serial killers and how serial killers kill, which was the final straw for me. And I leant across and I said, excuse me, and I did it very politely. would you be able to turn the volume down? That content is inappropriate for my daughter. To which she said, but it's a documentary because, you know, that makes a difference when you're talking about how you kill people. The fact it's real is just so much better for a 13-year-old. And I said to her, well, that isn't your call. I'd like you to turn it down. And in general, it would be better if you turn the volume down all because it really is quite disturbing. To which point her response was, it's a public train for heaven's sake. And I said, well, yes, and that's why I'm asking you to turn the volume down and maybe you could use headphones, to which she gave a big sigh and rolled her eyes. She did turn the volume down, though. We left it there. She did creep it up slightly as we got nearer to our destination. But that was the point. Now, put it out there. I have never seen such a uniformity of opinion. I must have had about 40,000 responses in total across my social media platforms. I think I only saw three that were supportive of keeping the volume up. And many people saying I was way too polite and they would have been more aggressive. I mean, lots of people also asked, did she recognise me? She didn't. Some people do, some people don't. And it makes it more difficult to intervene when you're a known person because, you know, you always think it's how it's going to go. So that's what happened. Speaker 3 (5:47) I didn't have a response that big, but I wrote about this in The Guardian. And it struck me then that, like you, everybody agrees it's a terrible thing. And it's objectively antisocial. Whether it's about serial killers or what, it's just antisocial. And yet everyone agrees that, and yet you literally can't get on public transport now without somebody doing it. Speaker 1 (6:11) No, and I think it's interesting. Why is that? You can arguably forgive children, someone playing it for a child under three who can't put headphones in. You can forgive someone maybe doing a 30-second clip because they don't have headphones to see. But it was the long, sustained, continuous use of it. But I go back. This lady's argument was it's a public train, for heaven's sake. So for some reason, her logic, and the reason I did the post was to check whether I was out of kilter or she was. Her logic was... It is a public place. You cannot tell me what to do. I am playing a sound in public. And some people say, well, it'd be the same if someone was sitting opposite. It wouldn't. It's different. It feels it's the tinny driving noise and consistency of those social media videos. I don't know. Maybe the next stage in this, maybe we should ask. I'm sure Five Live will allow anonymity. If someone out there does this, if you do this, why do you do it? Is it because you disagree and you think it is socially acceptable? Or is it another reason? I'm sure there'll be some people there who have hearing issues who it's necessary for and some with young children. But let's exclude those narrow ranges. I mean, don't ask me, if you do it, why do you do it? Or do you just think, yeah, it's not socially acceptable, but who cares? I'll do it anyway. Speaker 3 (7:22) I mean, I had an idea of starting a charity where the likes of you and I go round. Every time we get on public transport, we have a pocket full of free headphones to give to anybody. Speaker 1 (7:35) So the two comments that stuck out to me on this was one is a woman who carries old cheap headphones and she says what she does is she just offers them and says, would you like these? Which I thought was really good. But let's just put this in context. It is a relatively trivial issue, though incredibly frustrating. One of the messages I read was from a woman who was travelling with her three-year-old child on the bus and nobody had said anything. So she eventually turned around to tell the man who was sitting two rows behind her. pleased to turn down the hardcore pornography he was playing loudly on the bus. I mean, if society's got to the idea that someone thinks that's an acceptable form of behaviour in a public environment with children about, then we really do have a problem. Speaker 3 (8:21) Right, it's nice to be in full agreement with you on something, Martin. Let's see what tips come Speaker 1 (8:26) in. Speaker 3 (8:26) We're always in Speaker 1 (8:27) agreement. What does that mean? Speaker 3 (8:28) Well, I mean, sometimes I pretend to agree with you just for the quiet life. On this, I feel it to my very core. I Speaker 1 (8:33) think Speaker 3 (8:33) that's Speaker 1 (8:33) a Speaker 3 (8:33) very Speaker 1 (8:33) sensible move. Speaker 3 (8:37) Energy, then. We had an announcement in the conference speech, didn't we, about VAT, and it's... Well, Speaker 1 (8:43) the Speaker 3 (8:43) VAT... Go Speaker 1 (8:45) on. I don't want to go large on energy, because we do a lot on it, and actually I should say, next week I'm hoping we will have the Consumer Minister for Energy on the podcast taking your questions. If you have questions for her about why energy works the way it does, then please email martinlewispodcast at bbc.co.uk, and it would be good to get those questions in. My warning today is today is Energy Price Change Day. Now, it's price change in two different ways. If you are on a standard tariff that is price capped, your price is going up by 3.6 % because it's the 1st of October and it moves every three months. And this is one of those three months nodes. If you are on a fix or a special deal. electricity VAT has been scrapped for six months from today. So the amount you pay for electricity will be dropping 4.8%. I should note that it's being scrapped for the price cap too, but it's still going up 3.6%. It would have gone up 6.2 % without the scrapping of electricity. So as you can see, everybody's price is changing today. What you pay is changing. And when you have a price change day, the sensible thing to do is today or tomorrow or the day after, if you are paid by monthly direct debit, and you do not have a working smart meter, is just to submit a meter reading now. That way, regardless of which way the price is moving, you have drawn a line saying I used this much before and all my usage afterwards is at a different price, so that they can't over-assume you were using more in the higher rate period, whichever one that is, whether that's the one you've come from or the one that you are going to. And while we're on energy, I should mention... Today is a great day to do a comparison if you are on a standard tariff, a do-nothing tariff, a I-haven't-fixed tariff, so that you're on the price cap. Because the price cap has gone up and fixes have got cheaper because of the electricity VAT, you can currently get a fix for 4 % less than the October price cap, and the predictions are the January price cap will be going up around 20%. So if you haven't gone onto a whole-of-market by default comparison site yet, done a comparison to find a cheap fix for you, this is a good day to do it. Speaker 3 (10:53) Shall we move on to premium bonds then? Indeed, yes. Run us through the basics. And I Speaker 1 (10:59) like Speaker 2 (10:59) it when you do that thing about the difference between... Speaker 3 (11:02) We do different ways of calculating the average, yes. We're going to Speaker 1 (11:05) do that. I'm going to come to that, I think, when we get the questions and explain whether it's worth it or not. We're just going to go through the very simplicity. Premium bonds are the UK's biggest single savings account. There is £136 billion. in them, £136,000 million in premium bonds. And you can buy, currently, you need to buy a minimum of £25 in, a maximum of £50,000 in. Now, it's important you hear me say these are savings. This is not an investment. This is not an investment class. It's savings because it has deposit protection. That means when you put your money in, you are guaranteed to get back at least what you put in. With investment, the hope is you invest over the long term for it to grow faster, but the fact is you could risk some of your capital. But the difference between premium bonds and other savings is the amount of interest you get is dictated by a prize draw. Prizes range from £25 up to a million pounds. Now, a million pounds sounds great, but let's just put this in context. There are two £1 million prizes won each month. And there are 136,000 million bonds entered in that draw, which means each individual £1 bond has a one in 70 billion chance of winning a million. That's a lot less than the lottery, though, of course, in the lottery, you're gambling all the money you put in. Here, your capital is protected. So that's a nutshell of how it works. It's a prize draw each month. The smallest prize you can win is £25. The biggest prize you can win is £1,000. The prize fund rate... is 4.35%. Now, what that means is over a year, it will pay out 4.35 % of the amount in bonds in total. So there's £136 billion in bonds. It's going to be about £5 billion, a little bit more paid out each year. in-price funds. So that's the roughness of how it works. And I know you've got loads of questions and I've been saving, holding my fire to do some of the explanations in those. OK. Speaker 3 (13:12) Dad on fire. I wish I'd thought of calling myself that. Dad on fire says, which parents would stop giving them as gifts to children and grandchildren? I got given £50 40 years ago and it's one naffle. If they had, just to make me laugh, I don't know why, if they had invested in a global tracker, it would be worth over 2K. Also, if you've got numerous kids, if one wins and another doesn't, that creates issues. Speaker 1 (13:38) Well, look, I couldn't agree more. So let's go into some of that basics now. I'll just go to basics. If I start with the big picture, who are bonds good for, who are bonds bad for? Bonds are best for people who've got near the maximum in, near £50,000 in. who have already used up all of their tax-free savings allowance, because it's worth remembering the prizes on premium bonds are not taxable. They don't count towards your tax-free allowance. And they would otherwise be paying tax on their savings interest. In that case... Premium bonds are a good form of saving for you. Whether you should be saving or investing is a different question. I mean, if you're putting money away for a long term, I think a global index tracker would be a better bet than premium bonds anyway. But if you wanted to keep money in savings and you can get your money out, let's say you were planning to buy a house in a year or two, if you're putting a large amount in and you're paying tax on other savings interest and you've used up your cash ice, premium bonds are best for you. Premium bonds are worse for people who are putting relatively small amounts of money in and don't pay tax. Pretty much all children. Pretty much all children aren't paid tax. So the main people that we buy and we think of giving premium bonds as a gift for, because you've got a relatively small amount, and this will all become clear as I explain it in a little bit of time, you are unlikely to win even as much as a savings account, never mind as much as investing over the long period. And yet those are the right people. So the irony of premium bonds is we think of them as a great thing to give to children. Children are the worst candidates for premium bonds. And actually, if you're going to give it to someone, if your son and daughter is a high earner who's used up all their tax allowance and is saving their money for a property in a year or two, they're probably the best ones to give premium bonds as long as you're giving a lot of them. So the logic doesn't really work that well. I'm totally with, what was it, Dad on Fire? Dad Speaker 3 (15:25) on Fire. I'm with you, Dad on Fire. So a cut-off thing on... do these together unless you