The prize fund rate for Premium Bonds has been cut several times this year
Premium Bonds savers may want to look over their savings as the Autumn Budget looms. Chancellor Rachel Reeves will set out her latest financial policies before the Commons this week, on Wednesday, November 26. There have been rumours there could be changes affecting savers, including new policies around ISA allowances.
Now is also a good time for Premium Bonds holders to check over their savings portfolio. Kevin Mountford, co-founder of savings provider Raisin UK, said: “With the Budget approaching, it’s a good time for Premium Bonds holders to take stock of how their savings are really performing.”
He reminded customers that their chances of winning a prize are in reality very slim: “While the idea of a big win is appealing, the odds of any single £1 Bond winning in a given month are 21,000 to one, meaning most savers earn nothing at all. If you’ve held Bonds for more than a year without a win, it might be worth reviewing whether that money could work harder elsewhere.”
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The prize fund rate for Premium Bonds is currently 3.6 percent, after having been reduced by NS&I three times this past year. Mr Mountford urged Bond holders to compare this with the rates available in the wider savings market.
He said: “You can now find easy access accounts paying around 4.5 percent, a guaranteed return compared to the long-shot nature of Premium Bonds. Premium Bonds are fun, but they’re not a plan, and in today’s market, guaranteed interest can deliver far more.”
At the time of writing, you can get rates of 4.5 percent or more with several easy access accounts, as well as with some fixed term accounts and ISAs.
Christian Harris, chief analyst at investment comparison site Investing.co.uk, also encouraged customers to think seriously about cashing in their Bonds. He said: “If it’s been several draws, upwards of six months, and you’ve won nothing, then it could be time to consider changing tact.”
He urged people to consider that they are not earning any compound interest with their Bonds, as they could be if they put their funds in a conventional savings account. Mr Harris suggested one alternative you could try is the Home Deposit Saver offered by Leeds Building Society.
This currently pays 4.8 percent and you can deposit up to £30,000 into the account, although you can only pay in up to £500 a month. If you paid in the full amount over a year, you would earn £132 in interest. The expert said: “Another option is to shift a portion of your funds into short-dated bonds or money-market funds to get steady, low-drama growth.”
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Mr Mountford said Premium Bonds may still be a good option for some savers. He said: “They still have their place for those who value the thrill of a possible win and the peace of mind of 100 percent capital security.
“But if you’re saving for a goal such as a house deposit or retirement fund, relying on luck isn’t the most efficient way to grow your money. For many, a mix can make sense: keep a small amount in Premium Bonds for fun, and move the rest into a fixed or easy access savings account with a competitive rate.”
Could there be changes to Premium Bonds in the Budget?
Asked if there could be changes to Premium Bonds in the Budget, Mr Harris said: “I don’t expect significant changes to Premium Bonds to be announced.” He also added a word of caution to people thinking of moving their savings into stocks and shares.
The expert said: “I’d be cautious about switching funds to the stock market currently because we’re seeing bubble-like territory, particularly in the AI space, which makes investments there particularly high risk.”