Premium bonds are a way that Britons can invest their money to potentially make some cash – but are they better than a standard savings account?
NS&I, who run the premium bonds draw, claim investors have a chance every month to win a £1 million jackpot if they invest £100 or more.
As NS&I is ran by the government money is also 100 per cent secure in premium bonds – but does Money Saving Expert Martin Lewis recommend them?
Martin believes that more most Britons, a savings account with a high interest rate will provide better yields overall.
Money Saving Expert Martin Lewis revealed whether everyone with savings should pile in on premium bonds, since the rate is set to rise on Friday.
NS&I Premium bonds are a savings account with your interest dictated by a random monthly prize draw. The maximum you can put in is £50,000 and each £1 you have is entered in the draw where you can win anything from £25 to £1million.
Martin said: “The odds of winning a prize with each £1 per draw will be increasing from 1 in 30,000 to 1 in 24,000 with the rate change.”
Should you invest in premium bonds?
Martin said: “On Friday, the prize fund rate is going up, but most won’t even get this. The rate is just a vague watermark showing that the total payout is 1.4 per cent of all the cash in them. It doesn’t mean put £100 in bonds and you’re likely to win £1.40.
“That’s impossible, as the smallest prize is £25. In fact 19 of every 20 people with £100 in will win nothing – for the other person to get £25.”
Martin explained that smaller savers are likely to lose out, where as if you save close to £50,000 in the bonds you are more likely to win.
He also revealed that the tax free bonus that applies to premium bonds only really benefit those in the top 1 per cent of earners.
So, can you improve your chances of winning?
Martin said: “There are many myths about how to improve your odds of winning on the Premium Bonds – all are nonsense. Each £1 bond has exactly the same chance of winning as every other. Though many of the myths derive from an obvious route.
“A hundred bonds bought now have exactly the same chance as 100 bonds bought in 1957, soon after Premium Bonds were launched.”
So what should you do?
Martin said: “What people love about premium bonds is the excitement of opening ‘you’ve won’ letters or emails. And many with larger amounts rejoice with joyous declarations such as ‘I win £25 every few months – it’s fantastic!’ That’s a dangerous psychology – with a decent amount in them, you’re likely to win monthly. Do the maths and work out what you actually win annually. Then compare this to top savings where the ‘winnings’ are guaranteed.
“If you have average luck, and small savings then mathematically Premium Bonds are still a bad bet even at the new higher rate.Smaller savers would need to be extremely lucky to beat the 1.31% you can get in the top easy-access savings account, and even then fewer than half of those with the full £50,000 saved would be likely to match or beat it.
“And as many leave money sitting in Premium Bonds for years, if you’re willing to lock money away, the top one-year fix pays 1.95% guaranteed. Even with £50,000 saved, fewer than 10% of people (who don’t pay tax on savings) will match or beat this with Premium Bonds.
“Yet, if normal savings only give you a marginal gain over Premium Bonds, and you value the thrill and that infinitesimally small chance of winning a million, it’s not too bad to stick with them. And certainly for the few who have big savings and pay tax on them then they’re a virtual dead-cert must-do.”
Martin recently revealed the setting your thermostat on a certain setting to save money.
Many homeowners during winter time are tempted to turn their thermostats to the highest setting possible in order to keep cold drafts at bay.
Others suggest keeping the heating on for long periods of time set on a low heat can save you money.
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