Premium bonds: more big prizes – but what are your chances?

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There was some welcome news this week for Britain’s premium bond holders: from next month there will be many more higher-value prizes up for grabs.

A rejig of the prize pot means there will be three times as many prizes worth £100,000, £50,000, £25,000, £10,000 and £5,000 available in January than there were this month.

But are premium bonds a good bet or a waste of time? Are they better than bank and building society savings accounts? (If you have even got any money to stash away, that is.)

Premium bonds are positioning themselves as the ultimate game of chance – with your money back if you loseHargreaves Lansdown’s Sarah Coles

Sarah Coles, a senior personal finance analyst at the investment company Hargreaves Lansdown, says the shake-up is “a clever move at a time when we know people are searching for a solution to the financial dead end they have found themselves in”.

She adds: “We know prize draws become far more tempting at times like this, so premium bonds are positioning themselves as the ultimate game of chance – with your money back if you lose.”

However, it is important to be aware of the big downside of premium bonds in the current climate: they don’t pay any interest and so are more vulnerable to inflation than other savings.

And while you could strike it lucky and scoop a life-changing sum, there is no guarantee you will win anything at all.

When you buy premium bonds, you are entered into a monthly prize draw where you can win between £25 and £1m tax-free.

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National Savings and Investments (NS&I) has announced that the premium bond prize fund rate – the proportion of the total amount invested paid out in prizes – is being upped from 2.2% to 3% next month.

For January’s draw, that will mean an extra £80m in prizes available.

The odds of winning with each £1 bond number will remain the same at 24,000-1 but NS&I has beefed up the number of higher-value prizes and reduced the number of £25 ones.

As a result, the number of £100,000 prizes will jump from 18 this month to 56 in January, while the number of £50,000 prizes will shoot up from 36 to 112.

View image in fullscreenNS&I says the premium bond prize fund rate is being raised from 2.2% to 3% next month. Photograph: Mark Richardson/Alamy

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Meanwhile, there will be 223 £25,000 prizes – up from 71 this month – while the number of £10,000 prizes will go up from 178 to 559, and the number of £5,000 prizes from 359 to 1,118.

However, the number of £1m prizes is not changing – it is being kept at two a month.

The new 3% prize fund rate is higher than the top easy-access savings account rate on offer earlier this week (2.9%), according to the financial data provider Moneyfacts’ best-buy tables.

Despite that, says Coles, people need to remember that the odds of a win are still 24,000-1, “so the average person with average luck will still win nothing”.

She adds: “By putting your money into bonds, you’re giving up any interest you might have earned on your money elsewhere.”

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However, something that will provide comfort to many is the fact that premium bonds offer “100% capital security” because NS&I – which has 25 million customers – is backed by the Treasury.

According to Martin Lewis’s website, while the prize fund rate rise is good news, most people’s odds of winning are still relatively low.

It adds: “For most savers with average luck, and who don’t pay tax on savings interest, normal savings are still likely to beat premium bonds. This is because savings pay a constant rate of interest.”

The minimum investment for premium bonds is £25

If you are looking for guaranteed returns or want a regular income, premium bonds are not the way to go. However, some people will think that with lacklustre savings rates, they might as well have a bit of fun with their cash.

Even the lowest £25 prize is more interest than some people are going to get in a year from their savings accounts.

The minimum investment for premium bonds is £25, and you can keep buying them until you reach the maximum holding of £50,000.

You can manage your bonds online and by phone, and cash them in at any time.

You can find out whether you have been lucky in the prize draw by using the prize checker tool on the NS&I website or the prize checker app, or even by asking Alexa.

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