The truth about Premium Bonds
Premium Bonds are set to get more attractive from January 2023. With millions of us holding over £116 billion of the lottery-style savings product now is the time to tell the truth about Premium Bonds.
What are Premium Bonds?
Premium Bonds are offered by NS&I (National Savings and Investments). NS&I is a simple solution for your cash in the short term. Note you may not receive the highest returns though the monies will be backed by the HM Treasury, so all the money you place with NS&I is 100% secure plus you can retain immediate access to the cash.
While they offer a fun alternative to an easy access savings account, the odds of winning anything substantial are actually quite low. Your cash won’t grow while it’s deposited, but you could win a £1 million jackpot. Or you could win nothing at all. On this basis, rather than offering a guaranteed interest rate, you have the opportunity to win tax-free cash prizes of between £25 and £1 million every month.
Crucially, the odds of winning the Premium Bonds £1million jackpot are around 19 million to one – it should be noted, you have more chance of winning the National Lottery at around 10 million to one.
NS&I boosts Premium Bonds prize rate to 3%
NS&I have bolstered the Premium Bonds prize pot by £80million. From January 2023 the annual Premium Bond prize rate will increase from 2.2% to 3% – the third rise in just a year – taking the prize fund to just under £300million in January. However, the odds of each £1 Premium Bond number winning remains at 24,000 to one, as NS&I is offering more higher-value and medium-value prizes rather than increasing the number of smaller prizes.
- Number of £100,000 prizes will rise from 18 to 56
- The £50,000 prizes from 35 to 112,
- The £25,000 prizes from 72 to 223.
- The number of £10,000 and £5,000 prizes will also increase.
The question is, are Premium Bonds offering a good deal for the average saver?
Premium Bonds are positioning themselves as the ultimate game of chance – with your money back if you lose. However, it is important to be aware of what is involved when you buy Premium Bonds as part of your financial planning.
The odds of winning are still the same despite the January prize increase and because the Bonds do not earn interest, your stake may be increasingly eroded by inflation.
By putting your wealth into Premium Bonds, if you do not win you are giving up any interest you might have earned on your money elsewhere. It is important to make informed decisions based on your own personal finances before entering into Premium Bonds.
Some savers use Premium Bonds for specific reasons, such as to put money away for a specific purpose to be called upon in the short term or to pay a large bill or simply as an emergency fund. On this basis saving in Premium Bonds for a relatively short period can boost the chance of a win without evaporating your buying power.
Increased interest rates
As an alternative to Premium Bonds you could consider an NS&I Direct Saver account or Income Bonds with the added bonus NS&I has also increased interest rates across these products. More than 570,000 customers holding Direct Saver accounts and Income Bonds will benefit from an increase in the interest rate, with both products now paying 2.3%, up from 1.8%.
The Direct Saver rate is at its highest level since the account was launched in March 2010, while the Income Bonds rate is the highest it has been since February 2009.
Need to know more about NS&I products?
If you’d like to know more about the advantages and disadvantages of NS&I products for your own personal circumstances speak to your adviser today.
If you are new to personal financial advice call our team to arrange a free meeting with no obligation to work with us afterwards.
Simply complete the short contact form below or call our team on: 01244 347583 or email: info@innesreid.co.uk
The truth about Premium Bonds – This article is not personal advice. If you are unsure what is right for you, please seek personal financial advice.
Source: Citywire, Times Money
