Premium Bonds are without a doubt the UK’s biggest savings product, with around 22 million people investing more than 86 Billion pounds between them, in the hope of winning one of the elusive, big money prizes.
However, with the ‘prize rate’ set at just 1.4%, (which can be matched or even beaten by most regular, tax-free savings accounts) the question remains… Are Premium Bonds worth it?
For those that have never heard of Premium Bonds, allow me to explain. Premium Bonds are a type of easy-access savings account that allows you to deposit money (Up to a maximum of £50,000) and withdraw money out at your own discretion, without worrying about incurring penalties. Sounds pretty normal at this point, right? … Here is where things get a little more interesting. Unlike most savings accounts, Premium Bonds do not pay any interest on the money you deposit… Interest is paid in the form of a monthly prize draw. All Bonds hold an individual value of £1 and come with their own unique reference number, which gets entered into the prize draw every single month that you have that Bond registered in your name, meaning quite simply, the more Bonds you hold, the greater your chances of winning one of the many prizes available.
A few other key points to mention :
- All winnings are Tax-Free.
- All Savings are covered by the Financial Services Compensation Scheme.
Sounds great, right? Take a look below at the prizes available in the March draw.
For every 25 people with £100 in bonds, 24 of them will not win a prize.
For those that hold £1000 in bonds, 3 out of 5 will not win a prize.
BUT, for those that hold £15,000 in bonds, only 1 in 1552 will NOT win a prize, clearly showing that the more bonds you have, the greater your chance of winning.
Unfortunately, just because you win a prize doesn’t mean you’ve hit the jackpot and can sail off into the sunset. The most likely prize you will have won will be the lowest prize available, which is just £25. Therefore, if your going to achieve the annual 1.4% average Prize Rate (1.4% interest on £15,000 would give you £210), you would need to win £25 at least 8.4 times throughout the year, so in fact, you would actually need to win 9 times in total just to achieve the advertised average Prize Rate! I’m not entirely sure what the odds are of winning 9 times in total, but let’s just assume they are pretty high.
But let’s be honest, nobody puts their money into Premium Bonds with the hope of only ever winning the £25 prizes. Just take another look at that table above, there are prizes of £5,000, £50,000, £100,000 or even 1 MILLION POUNDS! These big money prizes are what entices people to fill up on Premium Bonds and get excited for the Prize Draw at the start of every month, and rightly so. As the table above shows, 2 lucky people get to win 1 Million Pounds in every prize draw and as long as you have a bond in the draw, you have a chance of being one of those lucky 2 people… the only downside is that chance would be approximately 1 in 43,215,118,377!
Earlier this year, I thought I’d conduct a little experiment of my own and test out the theory of whether the 1.4% Prize Rate could be achieved WITHOUT having the maximum amount invested. I decided to go right down the middle and deposited exactly £25,000, which I have had invested since March 2020. The below table shows my prizes from each of the draws so far that my Bonds have been eligible for.
I’ll be honest, when the first Prize Draw took place and I received my ‘Winner’s Email’ notifying me Id won not one but TWO prizes, I thought this little experiment might be the best thing Iv ever done! Turns out they were both just £25 prizes, so not exactly what I was hoping for but still, a fantastic start nonetheless. April’s draw came and yet ANOTHER winning notification dropped into my Inbox, now I was really starting to think this is getting interesting! Yet again though, just another low prize of £25.
May’s prize draw came and went, no Winning notification in my inbox that month. That was a sad day. Up to that point, I’d been riding high on my 2 previous prize-winning months and thought Id mastered the game of Premium Bonds. Clearly, I was wrong.
But as the old saying goes, ‘You Can’t keep a good man down’, June’s Prize Draw came along and would you believe it?!… ANOTHER winning email notification from Lady luck herself. Turns out it was just another £25… I just can’t seem to catch a break.
So, 4 months after investing £25,000 into Premium Bonds, I have a grand total of £25,100. I still need to win another £250 in the remaining 8 months of the year if I’m going to hit the 1.4% Prize Rate, but if my prizes keep coming as they have done so far I’d say I’m on track, but only time will tell as the months continue to tick by.
There is actually a Premium Bond Calculator (which was created by Martin Lewis and his team at Money Saving Expert) that you can use to try and predict what you might win over a certain period of time. I inputted my details into the ‘What Will I win?’ section and the results are below.
What I find quite interesting here is the Calculator suggests with ‘average luck’, I should only expect to win £250 over the course of the next 12 months, however, that is only 1% of my total investment, not the 1.4% which is advertised as the ‘Average Prize Rate’.
Something to note, I chose to have any Winnings re-invested into more Premium Bonds rather than have the winnings paid directly to my bank account, therefore, as I have been lucky enough to win £100 so far, in theory, The Compound Effect should now come into play and increase my chances of winning more. It will be interesting to see if any of the new Bonds that I gained through the prizes Iv won so far go on to win me more in the future.
I will keep you all updated at the start of every month on my Premium Bond experiment. If you could all keep your fingers crossed for me that would be just wonderful, after all, it won’t be much fun checking in with you every month just to tell you that I haven’t won anything!
So, to finally answer the question that started all of this… Are Premium Bonds Worth it? Well honestly, there isn’t really a right or wrong answer to that question. If you consider yourself an Average Joe when it comes to luck, and you would rather have a solid, regular return on your money, then I’d say Premium Bonds aren’t for you. There’s no guarantee you will ever win a prize, and even if you do win its likely it will just be a low prize of £25. However, if you consider yourself to have a little more luck than the Average Joe, why not invest in a few Premium Bonds and see how you get on? You can’t lose anything (apart from the potential interest you might have earnt elsewhere) as all Premium Bond accounts are covered by the government-backed FSCS. The worst thing that could happen is you don’t win anything.
The best thing that could happen? … well, you might just win a Million!
As always, thank you for taking the time to read my blog, If you could Like and Share this post with your friends and family I would be most grateful, and feel free to Follow the blog for many more posts on Personal Finance and my journey to F.I.R.E.