Metis AM
This year, National Savings & Investments (NS&I) celebrates 30 years since “Agent Million” visited the very first £1 million Premium Bonds prize winner.
Premium Bonds have been a popular way to save since they were first introduced, thanks in part to the exciting opportunity to win tax-free cash prizes. Prizes range in value from £25 all the way up to £1 million, and each £1 bond you own is entered into the monthly draw. Bond numbers are selected to win at random by the Electronic Random Number Indicator Equipment, affectionately known as “ERNIE”.
But given that over 21 million people own Premium Bonds in the UK, according to the NS&I website, what is the likelihood of winning in 2024, and are Premium Bonds a sensible way for you to hold cash savings? Read on to learn more.
The more bonds you hold, the more chances you have to win – though some savers have won the jackpot with very few bonds to their name
The prize rate on Premium Bonds fell in March 2024 from 4.65% to 4.40%, though the odds of any £1 bond winning a prize remained at 21,000 to 1. These odds are slightly higher than they were in March 2023, when they stood at 24,000 to 1.
So, while it’s exciting to be in with a chance of winning every month, in reality, a lot of Premium Bonds holders have never won anything. Indeed, MoneySavingExpert reports that, if you were to place everyone who holds Premium Bonds in a line, you would have to walk past 60% of them before you met someone who had won anything at all.
This is Money analysed the holdings of winners between May 2020 and June 2024 and discovered that there was no hard and fast rule about how many £1 bonds you need to hold to be a winner.
It found that only 38 of the 100 people who won £1 million in that time held the maximum amount of £50,000. The average £1 million winner held £38,779, and six of them held £10,000 or less. In fact, someone who owned just £17 in Premium Bonds was lucky enough to win the top prize back in 2004.
So, even though holding more bonds means you have more entries in the monthly draw, it is certainly possible to win the top prize even if you hold a relatively small amount in Premium Bonds.
Premium Bonds could be a safe and tax-efficient way to hold cash savings
Since you don’t earn interest on your savings, and any prizes you win are tax-free, Premium Bonds are a tax-efficient way to hold cash. This may be particularly helpful if you have already exceeded your Personal Savings Allowance and ISA allowance for the tax year.
Moreover, the money you hold in Premium Bonds is 100% safe because it is backed by the Treasury. There’s no risk of the “bank” folding and losing your money.
It’s worth pointing out, though, that the Financial Services Compensation Scheme (FSCS) has been introduced since Premium Bonds were created. This means that if a provider you hold savings with goes bust, your money is protected up to the value of £85,000 for each institution.
Some institutions own more than one high street bank, so if you hold savings exceeding this amount with different banks, check whether they are covered by the same banking licence. If they are, you may find that the FCSC does not protect all your savings.
So, though the safety of Premium Bonds is certainly attractive, it’s not the only wrapper in which your cash savings are safe-guarded.
There’s no guarantee that you’d win any cash prizes in Premium Bonds, so alternative wrappers might be more suitable if you want to grow your savings
As you read above, there’s no guarantee that you would win anything by holding Premium Bonds. This means there is a chance that your savings would not grow at all over many years. So, as prices rise over time, your savings could lose spending power.
If growing your savings is a priority for you, Premium Bonds may not be the most suitable wrapper. Instead, an easy access savings account or Cash ISA that offers a competitive rate of interest will mean your savings grow each year. They may not always keep pace with inflation, but they would offer a guaranteed rate of growth, unlike Premium Bonds.
Get in touch
If you’d like to learn more about whether Premium Bonds are a suitable wrapper for you to hold cash so that you can achieve your long-term goals, please get in touch.
Email enquiries@metiswealth.co.uk or call 0345 450 5670 today to find out what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
