Premium Bonds savers may want to make a change (Image: Getty)
Premium Bonds savers may want to read up on the rules about how the savings scheme works. An expert has clarified how the prize draw works as the rules for the NS&I programme will soon change.
NS&I announced recently that both the prize fund rate and the odds of winning for Premium Bonds will fall from the April draw. The prize rate will tumble from the current 3.6 percent down to 3.3 percent, while the odds of winning for each £1 Bond will head downwards from 22,000 to one to 23,000 to one.
Tim Grimsditch, managing director at financial advice group Unbiased, spoke about what this will mean for Bond holders. He said: “With rates being cut again, Premium Bonds are becoming less rewarding for many savers. For those with smaller balances, the odds of seeing frequent or meaningful wins are already low, so it’s worth considering whether that money could earn more in a competitive savings account.”
An exciting feature of Premium Bonds is you could take home a big prize each month, with top prizes on offer for amounts such as £50,000 or £100,000, or even a £1million jackpot. However, you can go a long time without winning anything, plus the vast majority prizes are very small amounts, such as £25 or £50.
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Mr Grimsditch said it’s worth thinking through your options even if you have bagged some wins lately. The expert said: “Although a few recent wins may create the impression that the bonds are ‘working’, every monthly draw is completely independent.
“Even a couple of wins doesn’t improve the odds next time. The only way to increase the chance of winning is to hold more Bonds, and that money could be earning guaranteed returns elsewhere.”
Guaranteed growth
You can hold up to £50,000 in Premium Bonds. However, even if you had the maximum invested, you may be able to get better growth with a conventional savings account.
Mr Grimsditch said: “Cashing in Premium Bonds sooner and moving the money into a fixed‑rate account means earning guaranteed interest straightaway, rather than sticking with longer odds and a reduced prize fund. With many savings rates still above 4 percent, holding on could lead to lower overall returns while better opportunities are available.”
If you had the maximum £50,000 in Bonds and moved this into a savings account paying 4 percent, you would earn £2,000 in interest over a year. Even if you had just £10,000 held in Bonds, this could earn you £400 in interest at 4 percent.
Review your options
Mr Grimsditch said moving your cash into a savings account may be a better choice if you want to grow your funds over the long term. He explained: “If steady growth is the priority, it’s worth reviewing other options. Premium Bonds can deliver the occasional boost, but long‑term, consistent progress is usually achieved through savings or investment accounts that offer guaranteed rates and clearer returns.”
If you don’t win any prizes, the value of your holdings just stays the same, losing value in real terms as prices increase. The savings expert said whether or not to cash in your Premium Bonds ultimately depends on your long-term financial goals.
He said: “When working towards major financial goals such as retirement, homeownership or building long term savings, making choices based on short term returns or the possibility of a win can make it harder to stay on track. If savers feel unsure of the best place to put their money, speaking with a qualified financial adviser can help clarify how Premium Bonds fit within the bigger picture, and ensure every part of their finances is working to support their future.”
