The rules for Premium Bonds recently changed
Premium Bonds savers have been urged to think through if the savings scheme is right for them. Bond holders see their Bonds go into a monthly prize draw with each £1 Bond having the same chance of winning a prize.
But your chance of winning anything are very small, and most of the prizes on offer are for small amounts such as £25. Christian Harris, chief analyst at educational platform Investing.co.uk, spoke about how much you need to have invested to have a good chance of winning a prize.
He said: “Returns aren’t guaranteed, your chances of winning are very low unless you put in a substantial amount, over £30,000, and the effective return is generally less than inflation.”
He warned that many people buy Premium Bonds without being properly informed. The expert said: “We see people put their money in Premium Bonds because frankly they don’t know any better or they want the thrill of winning a prize pot.
“Basically, Premium Bonds are a fine for a bit of ‘fun’, but not if you’re serious about getting the most from your savings (and you should be in today’s economic climate).”
He warned that the odds are “not in your favour” with the odds of winning for each £1 Bond currently at 22,000 to one.
Provider NS&I also recently dropped the prize fund rate, decreasing from the August draw from 3.8 percent to 2.6 percent. This means the total payout relative to how much Premium Bonds go into the draw is reduced, with less chance of wining a big cash prize.
Mr Harris also reminded customers that the 3.6 percent figure is merely an average. He explained: “The reality is that most either win nothing or only tiny amounts. It feels good to get a ‘win’ every now and then but if you average those out across the year you realise the returns are shoddy.”
Turning to what other accounts Premium Bonds savers should look at, Mr Harris said you can get rates of over 4.5 percent with some of the top-paying instant access accounts at the moment. Another option is cash ISAs, with rates of over 4.3 percent on the market.
An advantage of ISAs is all your interest earnings and investment growth within these accounts is tax-free. You can deposit up to £20,000 each tax year into ISAs, and this can be split between cash ISAs and stocks and shares ISAs.
Mr Harris said: “I’d definitely be exhausting that before turning to Premium Bonds.” Aaron Peake, personal finance expert at free credit score service CredAbility, also spoke about some of the alternative savings accounts that people may want to look at.
He said: “High interest savings accounts, regular saver accounts, and fixed term bonds will give you a clear return and in many cases will outperform what you are likely to win with Premium Bonds.” He urged savers to think through how they want to ultimately use their savings.
The expert said: “If you are looking for steady growth or building an emergency fund, then a top paying savings account is a better bet. If you already have your financial bases covered and like the thrill of maybe winning big, Premium Bonds can be a fun extra.
“But they should not be your main savings vehicle if your goal is to make your money work harder.”