Premium Bonds are 60 years old but are they still worth buying? What are the alternatives?
One in three adults has a Premium Bond but the chances of winning are 30,000 to one - we take a look at whether they are still worth and what the alternatives are
PREMIUM BONDS are the most popular savings product in the UK but they are definitely not the most lucrative.
More than 21 million customers collectively hold over £63 billion-worth of premium bonds - equating to around 37 per cent of UK adults holding the deals.
They do not pay savers regular interest, instead any returns are based on your numbers coming up in a lottery.
While some may win big, many will receive much lower than the advertised 1.25 per cent rate and some will get absolutely nothing. You can check if you're a winner in November's Premium Bond prize draw here.
The odds of each individual bond number winning any prize are 30,000 to one.
Earlier this year NS&I reduced the rate on premium bond from 1.35 per cent to 1.25 per cent - meaning over £4.5million less is now paid out in prices, reducing the chances of winning a prize from 26,000 to one, to 30,000 to one.
We take a look at whether Premium Bonds are still worth it, how to buy them if you’re still keen and what the alternative places for your savings are.
Are Premium Bonds still worth buying?
“Unlike spending money on the National lottery you're always guaranteed to get your stake back so with banks and building societies paying close to zero interest Premium Bonds aren't a bad home for some of your nest egg,” saving expert Andrew Hagger, from moneycomms.co.uk, said.
However, there are a few drawbacks to consider. The top paying easy access savings account pay up to 1 per cent interest. If you want a better rate then you’ll have to lock your cash away warns Rachel Springall, from Moneyfacts.co.uk.
She said: “Savers are in a very difficult situation at the moment with interest rates at record lows and little incentive for providers to fight for savers deposits.
“Right now savers would have to tie in for five-years to get a 2 per cent return on a fixed rate bond, which shows how desperate times have become.”
The history of Premium Bonds
MORE than 21 million people across the UK hold premium bonds.
Alderman Sir Cuthbert Ackroyd, the then Lord Mayor of London, bought the first premium bond on November 1 1956.
By the end of their first day on sale, £5 million-worth of premium bonds had been sold. The first prize draw was held on June 1, 1957. There were 23,000 prizes in the first draw, with a top prize of £1,000.
The minimum premium bond investment in 1956 was £1 and it is now £100.
Since the first draw was held, 355 million prizes with a total value of £17 billion have been handed out.
The amount bond holders can individually invest has changed significantly. In 1956, the maximum holding limit stood at £500 - but the figure is now £50,000.
The top prize has also changed over the years, from £1,000 to the current £1 million jackpot.
Winnings on Premium Bonds are tax free, but since changes to the Personal Saving Allowance - which means that savings interest is automatically paid tax-free up to a limit, with 95 per cent of people never paying tax on any savings - this looks a lot less attractive.
Sue Hannums, director of independent savings advisers Savingschampion.co.uk, said: “The once tempting tax free interest looks a lot less tempting following the introduction of the Personal Savings Allowance.”
Your cash is also a 100 per cent protected as it is operated by the government-led National Savings & Investments and backed by the Treasury.
However, under banking rules savings in UK-regulated savings accounts are protected up to £75,000 per person, per institution by the Financial Services Compensation Scheme.
But then again, there’s always the chance that you’ll win the top prize of £1million…
The alternatives to Premium Bonds
One of the best places to put your cash - without locking it away - is a high interest paying bank account, according to Rachel Springall from Moneyfacts.co.uk.
“Nationwide pays 5 per cent for the first 12 months on its FlexDirect, but only on balances up to £2,500.
“Sadly, there are a few lucrative accounts on the market soon to have their cash rates slashed, including those from TSB, Santander and Lloyds Bank.”
If you’re a first-time buyers then you might consider a Help to Buy ISA as the government will boost their deposit by 25 per cent, one of the best offers from Barclays Bank, which pays 2.25 per cent – much more than any other ISA outside of the scheme.
If you don’t mind locking away your money then some fixed interest accounts pay up to 5 per cent for 12 months, if you hold a current account with the provider. The best ones are from First Direct, HSBC, M&S Bank and Nationwide Building Society.
How do you buy Premium Bonds?
You can buy them online, over the phone, or by post.
You can check online via nsandi.com or by downloading an app to see if you're a winner.
Premium bond holders can also opt to have prizes paid directly into their bank account with notification of prize wins coming to them by email.
The bonds are available to people aged over 16 with a minimum of £100 to invest. Parents and grandparents can invest on behalf of their child or grandchild.