Premium Bond prize pot slashed by £5.7million on Monday – are they still worth it?
Whilst the average bond holder receives a return of 0.98 per cent, you could still be one of the many that don’t get any return at all
MILLIONS of Premium Bond holders will have smaller odds of winning big from Monday, as NS&I cuts the prize pot by £5.7million.
The changes have called into question whether savers should still bother putting their money into the bonds.
From May 1, NS&I will slash 5,020 Premium Bond prizes, and the total value of the prizes will be cut from £69.5million to £63.8million.
The cuts will affect more than 21 million Premium Bond customers.
There will be two £1million prize pots, two £100,000 prizes and six £50,000 prize funds.
More than two million savers will be handed a £25 prize fund.
Steve Owen, acting chief executive at NS&I, said: “We appreciate that savers will be disappointed, but we believe that the new rates present a fair offer to customers, who will continue to benefit from our 100 per cent HM Treasury guarantee on all holdings, as well as tax-free prizes for Premium Bonds.”
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Should savers ditch their Premium Bonds?
Hannah Maundrell, editor in chief of Money.co.uk, said that cuts to the prize pot will encourage bond holders to "weigh up their options", as they no longer provide such good value.
She said: “Next month’s prize draw will offer Premium Bond holders fewer larger prizes with £5.7million less up for grabs, but are they still worth keeping?
"Whilst the average bond holder receives a return of 0.98 per cent, you could still be one of the many that don’t get any return at all."
Maundrell says that while the small chance of winning a million quid each month does hold an element of excitement, seeing the bonds as a good savings vehicle is generally "a mistake".
That's because the returns are relatively low, and they are no longer the only accounts to offer interest tax-free, as a basic rate tax payer can now earn £1,000 a year in interest without having to pay tax.
But Anna Bowes, director at SavingsChampion.co.uk says that Premium Bond holders may actually be just as likely to win a prize as before, albeit a smaller one, as the number of £25 prizes being offered each month will increase, at the expense of some of the larger prizes.
She said: "The bottom line is that whilst interest rates on savings accounts are so low, many people will feel that it's worth risking the possibility of winning nothing for the chance of winning the jackpot, however unlikely."
Premium Bonds are still the most popular savings product in the UK, and more than 21 million customers collectively hold more than £63 billion-worth of premium bonds – equating to around a third of British adults holding the deals.
They do not pay savers regular interest, instead any returns are based on your numbers coming up in a lottery.
The odds of each individual bond number winning any prize are 30,000 to one.
What are Premium Bonds and how do you buy them?
THE bonds are essentially a savings account you can put money into or take out money out of which have their interest rates set by a lottery.
The minimum amount you can invest to begin with is £100 and the maximum you can hold is £50,000.
Each bond has an equal chance of winning, meaning you are more likely to win the more you invest. The chance of winning a prize, with an individual bond, is 30,000 to 1.
Anyone over the age of 16 can buy them or they can be held in the name of an under sixteen by a parent or guardian.
You can buy the bonds 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.
What are 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.
Nationwide pays 5 per cent for the first 12 months on its FlexDirect, but only on balances up to £2,500.
Tesco Bank pays 3 per cent on balances up to £3,000, while Bank of Scotland pays the same rate on balances up to £5,000.
All three accounts require customers to pay in a certain amount each month, and set up a minimum of two direct debits.
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, M&S Bank and Nationwide Building Society.
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What are Premium Bonds and how do you buy them?
THE bonds are essentially a savings account you can put money into or take out money out of which have their interest rates set by a lottery.
The minimum amount you can invest to begin with is £100 and the maximum you can hold is £50,000.
Each bond has an equal chance of winning, meaning you are more likely to win the more you invest. The chance of winning a prize, with an individual bond, is 30,000 to 1.
Anyone over the age of 16 can buy them or they can be held in the name of an under 16 by a parent or guardian.
You can buy the bonds 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.