He explained your chances of winning a Premium Bonds prize
Martin Lewis has clarified the rules around Premium Bonds. The savings expert spelled out a misunderstanding about how the prize scheme works.
Speaking on his BBC podcast, he shared some thoughts about the prize-based savings scheme, to help people decide if it’s right for them. One thing he was keen to tell listeners was that “if you’ve got smaller amounts, the returns tend not to be that good”. Providing an illustration, he said: “If you have £1,000 in Premium Bonds over a year, then 56 per cent chance you’ll win nothing. So someone with typical luck with £1,000 is likely to win nothing over a year.”
‘Most people won’t’
If you do strike it lucky and win a prize, the reality is most prize amounts are for small amount such as £25 or £50, with only a small batch of big prizes on offer each month. Applying this to the £1,000 holder, Mr Lewis said: “They have a 20 per cent chance of winning over £100 [over a year], which would be a good return, it’d be a 10 per cent return on £1,000, but there’s only a 20 per cent chance, so most people won’t.
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“And then they only have a 0.21 per cent chance `of winning over £1,000, and winning large amounts is even smaller. So that’s a rough distribution that you can go and look up for yourself.”
‘My main issue’
Continuing with this £1,000 example, he issued a warning here for well-meaning parents. Mr Lewis urged: “My main issue with Premium Bonds is so many people give them to kids, and they give them £1,000.
“Well, with £1,000, the odds are you’re not going to win anything. You’re not going to win anything, and we give it to children, and then that’s eroding by inflation year after year, and it isn’t a good nest egg for children.”
If you don’t win any prizes, your holdings just stay the same, and so you lose out in real terms in the purchasing power of your holdings, as the cost of living increases. Despite these words of caution, Mr Lewis did share some guidance on when Premium Bonds may be worth a punt.
£10,000 example
He spoke about an example where you had a larger amount you could put into Bonds, of £10,000, so you have a much better chance of winning a prize. Mr Lewis said in this case, Premium Bonds could be a “good bet” compared to other savings options, provided you also meet two other criteria:
- You have used up your yearly ISA allowance – Currently £20,000 which you can divide however you want between cash ISAs and investments
- You have use up your personal savings allowance – This is the amount of cash savings interest you can earn tax-free each year. It’s £1,000 for basic rate taxpayers, £500 for those on the higher rate, with zero allowance for those on the additional rate.
The maximum amount you can put in Premium Bonds is currently £50,000. The best way to increase your chances of winning is to buy more Bonds, as this means you will have more entries in the monthly draw.
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