As the Chancellor announces details of its new Green Savings Bonds — issued by the government’s own National Savings and Investments agency (NS&I) — we take a look at its most popular savings product — Premium Bonds — to see if they’re worth it, or a waste of time.
Does anyone still buy Premium Bonds?
First of all, the numbers are pretty impressive. Though the figure fluctuates slightly, somewhere around 21–22 million people in the UK own Premium Bonds, totalling over £100bn. In other words, almost one in three of the total UK population of 68 million. ‘So they must be doing something right?’ Well let’s see how they work first.
How they work
You can put anything between £25 and £50,000 into Premium Bonds, either online, over the phone or by post. Each individual bond is worth £1 and has a unique bond number. But here’s the important bit — Premium Bonds are not like a Bank or Building Society savings account where you get interest. There is no guaranteed interest on the money you put in.
Instead the interest — which is currently running at about 1% — funds a monthly prize draw. Every bond has a separate and equal chance of winning cash prizes in the draw. Winning bond numbers are generated at random by a system called ERNIE (Electronic Random Number Indicator Equipment). Prizes start at £25 and go right up to £1m. All prizes are tax free, which is great if you win one.
By way of example, in May 2021 there were over three million prizes in the monthly prize draw and the total value of prizes was almost £90m. ‘That sounds like a lot of prizes so surely it must be pretty easy to win one?’
How likely is it to win a prize?
What you have to remember is that there is over £1bn in Premium Bonds — that means over a billion individual bonds are entered in each draw. In reality, the odds of a £1 bond winning a prize in a given month are around 34,500 to 1. If you want some context here, the chances of winning the Jackpot in the UK Lotto are 45 million to one.
As each bond has the same chance of winning, the more bonds you hold, the better your chance of winning. The opposite is also sadly true, the fewer you have the less chance, meaning if you had the minimum £25 there’s a good chance you would never win anything at all.
In fact, Martin Lewis, @MoneySavingExpert, reckons with ‘average luck’ even £1,000 might not win you anything. However, once you have £10,000 then, again with ‘average luck’ you stand a chance of winning £75 in a given year. That equates to an interest rate of 0.75% and compares favourably to instant access savings accounts in the market, but of course it depends on your luck and is not guaranteed.
Is the money safe and how quickly can I get it back?
Firstly, all money saved in Premium Bonds is 100% guaranteed as it’s backed by the Treasury. The face value of every £1 bond never changes so you always get back what you paid in plus any prizes, though over the longer term you would have to compare your actual returns against inflation to ensure the value of your money isn’t being eroded. Also, as they aren’t a fixed-term saving account you do not have to wait to the end of a term to get your money back. Payment is usually done within eight working days of receiving an application to ‘cash in’.
Can grandparents buy them for grandchildren?
Yes they can. Once a purchase is made the grandparent will be sent an acknowledgement, but only the nominated parent or guardian will be able to manage and cash in the Bonds.
So, are Premium Bonds worth having?
If you receive a reasonable amount of cash, say between £10k and £50k and want or need to keep it as cash but are uncertain for how long, then Premium Bonds could be worth considering. The easy access terms are suitable if your plans are uncertain or may change. It really depends on whether you want to take the chance that you will have ‘average luck’ or better.
For smaller amounts, a savings account or cash ISA might be better. The odds are against you and you may receive nothing at all from Premium Bonds. However, every bond has the same chance of winning and there is just a tiny chance that you might win big. Worst case you will get back what you put in — If this appeals then best of luck!
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