Premium bonds: is it worth investing now that the odds of winning are better? | Savings

Patrick Jones* will never forget the moment he opened a letter and discovered he had won £100,000 on the premium bonds.

“I said to myself: this is absolutely insane. It must be a hoax,” says Jones, who had invested £15,000 in the bonds.

Five years earlier he won £5,000 with a £2,000 stake. He couldn’t believe his luck could be so ‘scandalous’. Even after the prize money arrived in his account, he struggled to accept that he had actually won a six-figure sum, excluding taxes. “It took me a while to understand. I felt very lucky, very lucky – and very happy. »

He used the money to take time off work as a landscaper, go on a trip, and retrain as a chartered accountant. “It completely changed my life.”

Dianne Heddy also invests in premium bonds. However, she has long been waiting for a letter like Jones’s. In 1956, the year bonds first went on sale, she put all her birthday money – £7 – into the government-backed savings scheme. She was nine years old.

“I never bothered to cash in the bonds, but I never won anything,” the 75-year-old says today. “I gave up hope.”

And there are millions of other people who have never earned a dime.

Freedom of Information requests to the National Savings and Investments (NS&I) in 2021 and 2022 revealed that around three-quarters of all premium bond savers have never won a prize.

However, there is good news for the UK’s more than 22 million bondholders: since this month the reward funds rate – the proportion of the total amount invested in rewards – is the highest for 24 years.

It was recently raised from 4% to 4.65% – its highest level since March 1999.

As a result, the odds of winning with each £1 bond number have improved to 21,000-1 from 22,000-1 previously.

The changes add around £66m to the prize fund for this month.

NS&I has also increased the number of higher value prizes and reduced the number of prizes by £25. As a result, the number of £100,000 prizes has risen from 77 in August to 90 this month, while the number of £50,000 prizes has risen from 154 to 181.

But are premium bonds still worth buying now that interest rates on savings accounts look much better than before? For example, you can now get a one-year fixed rate account with NS&I paying 6.2%.

Of the 100 or so Guardian readers who shared their experiences with premium bonds, more than a dozen savers who have held bonds for 60 years or more told us they had yet to see any returns on their investment.

That’s potentially a lot of interest on savings accounts that haven’t been tapped.

Mark Hainge, 66, still owns the two original paper bonds his grandmother and godmother bought him when he was a few months old. “I haven’t won anything with them. Perhaps their true value lies in reminding me of the love the two old ladies had for my child,” he says.

He looks at a photo of himself as a boy with his tricycle. “I had to save for months for this tricycle – (the number-generating machine). Ernie could have bought it for me on the spot if I had been lucky,” he says.

However, last month, after speaking to the Guardian for the first time, Mark enjoyed a gain on premium bonds – compared to other bonds he holds. “Neither of my two initial links contributed to this, obviously.” He used his winnings to pay for tickets to a music festival.

Another reader, James Looker, 44, had much better luck with the vouchers his grandparents gave him, even though he didn’t win any significant prizes.

He and his sister were given £500 in premium bonds in 2006, “on the condition that if either of us won we were to split the winnings equally”.

He adds: “Imagine my joy when my sister won £10,000 a few months later and had to give me £5,000. My bonds have gained next to nothing, and when they come up to £25 my sister tells me to keep the £12.50 I owe her through gritted teeth.

Not collecting interest from savings accounts is one of the main disadvantages of choosing to put your money in premium bonds. That doesn’t bother Bilal though. (He would not give his last name.) Over the past three years he has gradually built up a portfolio of £50,000 in premium bonds.

He likes the fact that they are backed by the Treasury and says he wanted to make a legitimate investment that would not diminish in value: “I invested because it was safe. I had a feeling that I might get lucky. But more than anything, it was security I wanted.

His wife, Zara, also holds £50,000 worth of bonds. But while she never won more than £100, he did win £10,000 in January.

“I told my wife the email was a scam,” he says. “I never thought I would be so lucky.”

Since then, he and Zara have not stopped celebrating their good fortune. “When my victory was confirmed by NS&I, we danced around the house,” he says.

Guardian reader Gemma Thomas* invested £25,000 of her divorce proceeds in premium bonds in 1996. “I didn’t want to invest in anything high risk or unethical. Premium bonds seemed pretty safe, without me having to do too much research or employ someone else to tell me what to do.

Fifteen years later, after taking part in around 180 raffles and winning some £25 here and there, she has won £100,000. “I never had a lot of money. So I was absolutely thrilled.

Despite her luck – or perhaps because of it – she feels she will win another big prize in the future and so continues to invest in premium bonds. “I could be wrong, of course, but I have this feeling.”

Jones takes a similar attitude: “It’s all about the numbers. So if I have money aside, that’s where I put it. »

* Some names have been changed

What are the odds of winning?

How do the odds of winning stack up? Are premium bonds a good place to store your savings?

While there’s no doubt that the increased prize pool rate is good news for bondholders, it doesn’t mean you’ll now be getting a 4.65% return on your money – just that. 4.65% of the total amount invested in Premium Bonds will be paid out. in rewards.

These range from £25m to £1m. But as this month there are 1,027,604 prizes of £25 and only two prizes of £1m, you have a much better chance of winning £25 than £1m.

Actuarial consultancy OAC is generally positive about the changes. It says that although the average investor’s “rate of return” on premium bonds has increased by 16% this month, the odds of winning a prize have only increased by 5%. He says this is due to a significant shift from small prizes of £25 to larger prizes of £50 and £100.

“The odds of winning a £25 prize were 71,000 to 1, but have now dropped to 118,000 to 1, a 40% decrease in odds. By contrast, the odds of (winning) £50 or £100 jumped by 25%, from 32,000-1 to 26,000-1,” says consultancy Greig Bingham.

The fact that premium bond prices are tax-free is one of the most important factors to consider when deciding whether or not to invest, says Anna Bowes, co-founder of the website Savings Champion.

“For higher-rate taxpayers, supplemental-rate taxpayers, and cash-rich savers already using their personal savings allowance, premium bonds remain a great place to park cash,” she says.

It compares premium bonds to saving in an easy-to-access savings account, because you can cash in premium bonds at any time without penalty.

Higher rate taxpayers who have already earned £500 in interest on their savings and used their Isa allowance should find an easy to access account paying 7.75% gross to earn the equivalent of a 4.65 return %, tax-free. “You won’t get that,” Bowes says. At the time of writing, the highest paying easy access savings accounts are offering around 4.94%.

On the other hand, you may not earn 4.65% or even nothing on your premium bonds, when you would have been sure to earn interest with a simple savings account.

When interest rates were lower, the amount of interest you risked by investing your savings in premium bonds (rather than an easy-to-access savings account) was less than it is today. today.

“If you invest £50,000 now, you could lose up to £2,470 in interest,” says Bowes.