Premium Bonds savers have been issued a stark warning that for many their holdings are “losing value over time”.
The savings scheme sees all the Bonds go into a monthly prize draw with each £1 Bond having an equal chance of bagging a prize, which range from £25 to the £1million jackpot.
But the reality is you can go many months or even years without winning a penny. Tom Francis, head of advice at Octopus Money, said: “If you’re thinking of them as a way to grow your savings or keep up with rising costs, they’re probably not your best bet.
“They don’t pay interest, so unless you win a prize – which most people don’t – your money just sits there, losing value over time.”
If you don’t win any prizes, the value of your holdings will not change, but the purchasing power of your cash will fall as inflation raises the cost of living.
Recent figures obtained by wealth firm AJ Bell found two thirds of Bond holders have never won anything despite the average saver holding over £5,000 in Bonds.
Each saver can hold up to £50,000 in Premium Bonds. Many people arrange their accounts so when they win some cash, the funds automatically are used to buy more Bonds, boosting their chances of a future win.
The prize fund rate was cut again from the April draw, down from 4% to 3.8%, with the odds of each £1 winning currently sitting at 22,000 to one.
Mr Francis said: “There are a couple of £1 millionjackpots each month, but the number of people winning those bigger prizes is tiny. In February, for example, just 164 people won £50,000, and only around 1,600 won £5,000.
“Meanwhile, more than 24 million people hold Premium Bonds. When you consider those extremely low odds, coupled with the fact that your money won’t be earning any interest, it becomes clear that your cash could be working a lot harder somewhere else.”
One benefit of Premium Bonds is any prizes you win are tax-free, making them an attractive savings option if you have used up your personal savings allowance or your ISA allowance.
You can invest up to £20,000 into tax-free ISAs each year while a basic rate taxpayer can otherwise earn up to £1,000 in interest a year tax-free.
Mr Francis said: “A small amount in Premium Bonds can make sense as part of a broader mix, especially if you’ve already made the most of things like ISAs and pensions.
“But for most people, your money will work harder in a decent savings account or a long-term investment that actually earns you something.”
One common myth about Premium Bonds is that older Bonds have a lower chance of winning or are no longer eligible for the monthly draw after a certain period. In reality, all Bonds go into the draw and have an equal chance of bagging a prize.
Andrew Gosselin, personal finance expert and senior contributor for coupon code database Coupon Mister, explained: “The draw does not work like a lottery where numbers become overdue; every pound has the same chance every month, whatever its purchase date.
“Selling and repurchasing bonds merely resets the clock for eligibility and may even lose a month of entry without changing the probability. Anyone who has gone a year or more without a win is experiencing the typical pattern, not evidence of bad luck.”
When buying more Bonds, you have to wait a full month before they go into the monthly draw, which takes place at the start of each calendar month.
