You could be missing out, an expert is warning
Millions of savers who have held Premium Bonds for years could be missing out on thousands of pounds in potential returns, according to new research. Analysis by Fidelity International indicates that someone who invested £5,000 in Premium Bonds a decade ago would now have approximately £6,190 – a rise of nearly 24%. However, when inflation is factored in, that money would actually have lost spending power, as £5,000 in 2016 would have needed to grow to £6,992 simply to keep pace with rising prices.
By contrast, the same £5,000 invested in a global stock market tracker fund could have surged to around £15,900 over the same period – a gain of roughly 218%. A FTSE 100 tracker fund would meanwhile have grown to approximately £11,600, equivalent to returns of around 132%.
The figures are likely to reignite the debate over whether Britain’s favourite savings product is leaving cautious savers worse off in the long run. Approximately a third of the UK population holds Premium Bonds, according to the research, with the average saver keeping them for around 10 years.
The study also revealed that around 850,000 under-16s own bonds, frequently purchased by relatives as gifts. Premium Bonds, operated by NS&I, do not pay conventional interest. Instead, savers are entered into monthly prize draws offering tax-free winnings.
Despite this, returns are not guaranteed and rely entirely on luck. Fidelity cautioned that although Premium Bonds can prove beneficial for emergency savings and short-term financial stability, keeping large amounts in them over several years risks having their value gradually eroded by inflation.
Jemma Slingo, pensions and investment specialist at Fidelity International, said: “Premium Bonds can play a useful role in a balanced financial plan. They offer capital security and tax-free prizes, making them a good option for short-term savings or an emergency fund. Where savers need to be careful is over longer time horizons.
“While your money is safe in cash terms, inflation can steadily erode its real value, and returns from Premium Bonds are uncertain as they depend on prize draws. Over time, that can add up to a significant opportunity cost compared to investing.”
“Premium Bonds are a popular gift, but with such long time horizons, even small amounts invested in the stock market have much greater potential to grow,” she said. The findings come as an increasing number of savers are reconsidering where to keep their money, following a prolonged period of high inflation and shifting interest rates.
The NS&I website says bonds can be a good investment if you want:
- a chance to win tax-free prizes from £25 to £1 million
- easy access to your money
- to buy a savings gift for a child under 16
