Martin Lewis has delivered a blunt warning about premium bonds to anyone with £5,000 or less in their account. The financial expert suggests that a conventional savings account could deliver better returns.
Premium bonds represent a savings scheme that allows you to set money aside whilst having the chance to win tax-free cash prizes. These rewards replace traditional interest payments.
Every £1 you invest gives you a unique bond number that goes into a monthly prize draw, with winnings ranging from £25 to £1 million, reports Lancs Live. But it is vital to remember that the more bonds you hold, the greater your chances of landing a prize.
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In a fresh update to his Money Saving Expert website, Mr Lewis revealed that premium bonds only make sense if you have a particular amount of money. He specifically suggested that grandparents would be better off giving grandchildren cash through standard savings accounts.
He said: “For years, many people, especially grandparents, have gifted children premium bonds. And frankly, in my view, for many they would’ve done better sticking with normal savings.”
He added: “Premium bonds are govt-backed savings, where the interest is based on a prize draw. The current prize fund rate is just 3.6 per cent, yet even that overestimates what most people will actually win with typical luck.”
The financial guru explained that premium bonds are typically only worth buying if you have more than £5,000, giving you a decent shot at winning the prizes.
He continued: “As most children have small amounts of savings and aren’t taxpayers, premium bonds are particularly unsuitable.
“Of course, there’s the ridiculously tiny chance your child will win a million, but they could also toss a coin and it land on its edge.
“So if you’re thinking of putting £1,000 or less into premium bonds for a child, it’s worth noting that with average luck our premium bonds probability calculator shows they are likely to win nothing over a year (give it a try based on your scenario).”
You can use the Money Saving Expert premium bonds probability calculator here.