Premium Bonds savers have been issued a frank warning as they could be missing out on £500 a year. Customers who have gone a while without winning anything may be wondering if the Bonds are right for them, particularly as the prize fund rate for the savings scheme has dropped twice in recent months.
The prize fund rate fell from 4.4% to 4.1% in December, and then went down to 4% from the January draw. The odds of a £1 being paired with a prize now sit at 22,000 to one.
Personal finance expert, Aaron Peak, from credit score service CredAbility, warned customers that they could be missing out on a better rate elsewhere. He said: “For those who prefer guaranteed growth, a standard savings account might be a better bet.
Currently, easy-access savings accounts are offering around 4.5% interest, while fixed-rate accounts can go over 5%. If you had £10,000 in Premium Bonds and won nothing, you’d have missed out on around £500 in interest in a year by keeping your money in a high-paying savings account instead.”
He warned that the Bonds are something of a “Marmite savings option”, as you either love the idea of going into a prize draw with a chance to win each month, or you would rather have the certainty of earning some interest.
The expert said one benefit of Premium Bonds is your money is secure as NS&I is backed by the Government, and also if you want the thrill of a prize draw, unlike the lottery you don’t lose your initial deposit. Prizes are also tax-free.
But Mr Peak pointed out that it’s all down to chance: “It all depends on luck. Some people win big, while others get nothing for months or even years.”
He said Premium Bonds could be a good option for people in these situations:
- You have maxed out your Personal Savings Allowance. Basic-rate taxpayers can earn £1,000 in interest without paying tax, but Premium Bonds prizes are tax-free
- You enjoy the excitement of a possible win and are happy to take the gamble
- You don’t need quick access to cash. Cashing in your Bonds takes a couple of days to go through, said Mr Peak, but there are no penalties for taking money out, unlike some fixed rate savings accounts.
In contrast, Premium Bonds may not be for you if this is your situation:
- You rely on savings for regular income. If you want a steady return, an account with guaranteed interest is a better fit
- You have small amounts of savings. With Premium Bonds, your odds of winning increase the more Bonds you have. If you have £10,000 invested, you have an effective interest rate of just 3.25%, according to figures from MoneySavingExpert. Mr Peak warned: “Those with less than a few thousand pounds might struggle to win anything.”
- You are fed up of never winning. If you are a longtime Premium Bonds customer and you’ve never won anything, it may pay to switch to get some guaranteed returns.
Another factor to consider is that if you don’t win any prizes, although your holdings stay at the same level, the value of your money is falling as inflation goes up.
You can hold up to £50,000 in Premium Bonds. Many savers set up their account so whenever they win some cash, the funds are used to buy more Bonds, thus boosting their chances of winning again.
