National Savings & Investment (NS&I) have recently announced that the number of Premium Bond prizes will be reduced.
As of June this year, the monthly odds of winning a Premium Bond prize will lengthen from 26,000 to 1 to 30,000 to 1, meaning the chances of you winning a prize each month will decrease significantly. The effective “rate” will drop from 1.35% to 1.25% and the number of big prizes will decrease with more smaller prizes (£50 and £100) being made available instead.
What Are Premium Bonds?
NS&I have full information on how Premium Bonds work on their website, but essentially they are a type of savings account where interest paid is decided by a monthly prize draw. Savers can buy bonds for £1 with each having an equal chance of winning, so the more you buy, the better your chances are of winning. The minimum amount of bonds you can purchase is £100 (or £50 for monthly standing orders) with the maximum amount being £50,000.
Premium Bonds are a safe method of investment as any money invested into NS&I is 100% protected by the government. This means that anything you do invest is guaranteed to be returned to you in full should you wish to withdraw it. Your bonds can be cashed at any time, which is appealing to those that do not want their money to be locked up for long periods of time. A big selling point of Premium Bonds is the opportunity to win cash prizes of up to £1 million, and although the chances of winning prizes within a short space of time are slim, many may opt for them over guaranteed savings options with low interest rates.
There are no guarantees of a return with Premium Bonds as they operate in a similar way to a lottery. You could have your bonds for 10 years without any prize wins, and while your invested funds will be returned to you in full, inflation isn't taken into account which will decrease the actual value of the funds. That said, Premium Bonds are still popular with savers, with over £59.8 billion held in them. It is argued that Premium Bonds should not be described as a savings product, as interest is not guaranteed, even if you choose to place large amounts of money in them over a long time. There is still money to be made, of course, but it is better to consider Premium Bonds as a lottery-type product. You may get lucky and win a large prize, but ultimately you are missing out on consistent and guaranteed returns.