The prize fund rate for the Premium Bonds prize draw recently changed
Premium Bonds savers have been urged to bear in mind an important five-year rule. Bond holders may be thinking of cashing in their Bonds after the prize fund rate dropped again from the August draw, from 3.8 per cent to 3.6 per cent. Finance journalist Martin Lewis recently issued a warning that the savings scheme may not suit everyone.
Financial experts at wealth management group EQ Investors have also urged customers to think through if it is worth holding on to their Bonds. Alex Hollinshead, financial planner at EQ Investors, said there may be better options for people with a long-term view for building up their savings
He said: “If your goal is to grow your wealth over five years or more, and you’re comfortable with some risk – a Stocks & Shares ISA typically offers much greater potential for building long-term wealth.”
He said that historically by putting your funds in a diversified portfolio of equities, you can get average returns of six to eight percent.
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Another advantage of ISAs is all your investment growth or interest earnings with an ISA are tax-free. Mr Hollinshead also reminded savers of the stark reality that some 88 per cent of Premium Bonds winners take home prizes for less than £2,000.
Also, if you do not win any prizes, the value of your holdings decreases in real terms due to inflation. However, Premium Bonds may still work for some people. Mr Hollinshead said: “Premium Bonds still have a valuable place in your overall savings strategy, particularly for short-term goals or as a low-risk emergency fund.
“However, they shouldn’t be relied upon as the primary vehicle for growing your wealth over the long term.”
The odds of each £1 Bond winning are currently 22,000 to one. But even if you take home a prize, the vast majority of these are for small amounts, such as £25. You can hold up to £50,000 in Bonds, and the more Bonds you hold, the better your chances of winning.
Many savers arrange their accounts so whenever they win any prizes, the proceed are automatically used to buy more Bonds. When you buy Bonds in this way, they are eligible to go into the next month’s prize draw.