Martin Lewis has issued a warning for Premium Bonds holders, explaining that “most people would earn more” by exploring different saving options. Speaking on ITV, the Money Saving Expert founder responded to a question from someone wanting to know how to buy Premium Bonds.
He directed the individual to NS&I’s website to purchase them, but he added a word of caution for the saver to consider if the Bonds were right for them. He warned: “I am only generally a fan of Premium Bonds for people who have near the maximum £50,000 and people who already have cash ISAs and pay tax on their savings. In other words, higher earners with large amounts of money.”
Premium Bonds are entered into a monthly prize draw instead of accruing value through an interest rate. Customers have had cause to question if their Bonds are worth it, as the prize fund rate is set to decrease from the December draw, falling from the current 4.4 percent to 4.15 percent.
A person with typical luck would need a minimum of £10,000 invested in Premium Bonds to have a decent chance at bagging a prize. Given that each £1 Bond has equal odds of winning, by buying more Bonds your increase your chance of a prize, with the holdings limit at £50,000.
The financial expert also warned those with modest savings that they may get on better with another savings account. He stated: “If you’re saving a couple of grand, the interest rate is currently 4.4 percent dropping to 4.15 percent in December, but with average luck you actually earn less than the interest rate that is published, because that’s called the prize rate.
“Most people would earn more putting their money in easy access savings or fixed rates at the top rate, and then you’re guaranteed to get interest each month. With Premium Bonds, it’s the luck of the draw.” Pointing to some specific cases, he said: “If you’ve got £30,000, £40,000, £50,000, you’ve used up your cash ISA and you’re paying tax on savings interest, it can be a good deal.
“If you’ve got £500, £1,000, £2,000, and you don’t pay tax on savings interest, with typical luck you’d do better elsewhere.”
Additionally, many people set up their Premium Bonds accounts to automatically reinvest any winnings into buying more Bonds, which increases their chance of future prizes. The current odds of each individual £1 Bond number winning are 21,000 to one, though these will fall to 22,000 to one from the December draw. The prize draw takes place at the start of each month.