The rules for the Premium Bonds prize draw changed recently
Financial journalist Martin Lewis has spelled out the stark reality of how Premium Bonds work. He issued a warning for people thinking of buying some Bonds, as it’s not right for everyone.
The consumer expert dedicated a large portion of his recent BBC podcast to explaining the rules for Premium Bonds, and who they are suited for. He had a word of warning for people thinking the luck-based scheme is a safe bet to hold your savings.
Better returns elsewhere
He warned people often “see it as a safe form of savings, and they don’t realise there’s a chance of it being eroded by inflation even more than top savings [accounts]. There’s certainly the chance of it not doing as well as top savings, and there’s very much a chance of it not doing as well as investing”.
He had a particular caution for people thinking of buying some Bonds as a gift for their loved ones. Historically, people have often done this as a kind gesture, but if you hold only a small amount in Bonds, you will likely never win anything.
Mr Lewis said: “Don’t give your kids £100 worth of Premium Bonds. You’re just going to do what hundreds of thousands or millions of people out there who have been given that, and they’ve never gained a penny from it, and their money has just been eroded by inflation.”
Premium Bonds rule change
The rules for Premium Bonds recently changed. From the August draw, the chances of any £1 Bond winning a prize increase from 22,000 to one up to 21,000 to one.
NS&I also increased the prize fund rate from 3.8 per cent to 4.35 per cent. Martin Lewis spoke about what type of saver Premium Bonds are a good choice for.
Who are Premium Bonds a good option for?
He said they may suit you if:
- You pay tax on your savings – as Premium Bonds prizes are tax-free
- You can’t find a more tax-efficient way to invest your cash
- You are putting in a “decent whack” with a minimum of £5,000
Mr Lewis said: “That’s when they become actually a good idea and you might want to look at it, once you’ve used up everything else. But as a basic thing for kids, I think there’s better.”
