Premium Bonds savers have been issued a warning as the prize fund rate for the savings scheme drops again next month.
The prize fund rate dropped for the December draw from 4.4 percent to 4.1 percent, and it will fall again to 4 percent in January. The odds of winning for each £1 Bond has also fallen this month from 21,000 to one to 22,000 to one, but will stay at this level in January.
With the rates drop, many savers may be wondering if the prize-based scheme is right for them.
Accountant David Kindness, who writes for Best Money, urged customers to weigh up the pros and cons of Premium Bonds carefully, as tjhe rates drop means “fewer chances for significant returns, especially for those with smaller holdings”.
He issued a warning about how much you need to have invested for a good chance of winning a prize, stating: “For meaningful returns, it’s generally recommended to invest larger sums—around £20,000 or more.
“Those with smaller amounts often find their chances of winning anything slim, making the Bonds feel more like a lottery than a viable savings tool.”
Calculations from Martin Lewis’ MoneySavingExpert site show that with £100 or even £1,000 in Bonds, you would win nothing with typical luck.
Those with £10,000 in Bonds would take home on average £350 a year in winnings while if you had the maximum £50,000 invested, you would still have an average prize rate of just 3.7 percent, winning £1,850 a year.
For savers looking at other alternatives where they would get a guaranteed return, Mr Kindness said: “High-interest savings accounts or Cash ISAs could be better options.
“For example, NS&I’s Direct Saver account offers a 3.50 percent gross/AER rate, which provides predictable growth. These options lack the excitement of a prize draw but deliver reliable results.”
Lexi Burgess, money saving expert at CredAbility, spoke about other savings options for those who enjoy the thrill of potentially winning a prize, with lottery-style savings accounts.
She explained: “They are like standard saving accounts but also offer the chance to win. With the Premium Bond prize fund rate dipping to 4 percent in January and standard savings accounts above 5 percent, they’re definitely worth looking at.”
She pointed to Co-operative Bank, with savers going into a monthly draw with prizes up to £2,500 if you pay with your debit card.
The more you use your card, the more entries you get, with a maximum 15 entries each month.
Another option for savers wanting to try their luck is Halifax’s Savers Prize Draw, where 1,603 customers win every month.
To enter the draw, you must have at least £5,000 in a qualifying Halifax or Bank of Scotland savings accounts.
Other providers that do lottery-style accounts include Coventry Building Society, Chip and several credit unions.
To work out if Premium Bonds are right for you, Mr Kindness said: “Think about your financial goals and risk tolerance.
“If the thrill of potentially winning tax-free prizes outweighs the need for steady returns, they might still have a place in your portfolio. Otherwise, explore other savings products that align with your needs for growth and security.”
