There is a monthly prize draw for Premium Bonds rather than an interest rate
Premium Bonds savers could get much better growth in their savings by switching accounts. Instead of accruing interest, Bond holders see their Bonds go into a monthly draw, with each £1 Bond having an equal chance of winning a prize. But the odds of actually winning a prize are very slim.
With a maximum holding limit of £50,000 in Premium Bonds, this equates to 50,000 entries into the monthly draw. However, with odds of winning standing at 22,000 to one, bagging a prize is still a long shot.
Plus most prizes are for smaller amounts such as £25, meaning those with high holdings might have seen better returns with a traditional savings account.
READ MORE: Top economist warns Chancellor could be forced into major tax rise U-turn
Tom Francis, head of Personal Finance at Octopus Money, said: “Premium Bonds don’t pay interest, so unless you win, your money simply sits there, gradually losing value to inflation. The thrill of a potential £1 million jackpot is exciting, but the odds are slim: in February, just 164 people won £50,000 and around 1,600 won £5,000 – out of more than 24 million bondholders.”
Each draw includes two £1million jackpot prizes and other attractive large cash prizes such as £100,000 and £50,000. The expert highlighted two other accounts that are worth considering.
Mr Francis stated: “For most savers, your money will usually work harder in a competitive savings account or ISA.” At present, there are many easy access savings accounts currently offering rates of 4 percent or above. You can also secure rates of over 4 percent with many easy access and fixed rate ISAs.
If you have the maximum £50,000 in Premium Bonds, if you moved this to an account paying 4 percent, you would earn a guaranteed £2,000 over the course of a year, if the interest rate stays the same. This may be a better option than the small chance of winning a big prize with Premium Bonds.
There may be slim chances of winning, but Mr Francis said Premium Bonds may suit some savers. He said: “Premium Bonds tend to make more sense as a saving vehicle for people who’ve already used up other tax-efficient savings options like their personal savings allowance, ISAs and pensions.”
One advantage of Premium Bonds is that all your prizes are tax free. However, this is also the case with ISAs, as any savings or investment growth within an ISA wrapper is tax free. You can deposit up to £20,000 a year into ISA accounts.