Premium Bonds: Are they worth it? Option now pays 40% more – ‘victory and disappointment’

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Premium Bonds: Expert discusses chances of winning prize draw

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The annual prize fund rate on Premium Bonds has recently been increased from one percent to 1.4 percent. It means the rate of return on the option has increased by 40 percent. 

With inflationary pressures and financial challenges, many will be wondering which option is right for them. 

Ed Monk from Fidelity International offered his verdict on Premium Bonds, and whether they are worth it.

He said: “I can report that, 14 months after purchasing my Premium Bonds, my return in prizes has given me an annual rate of return that almost exactly matches the one percent prize fund rate.

“From one point of view, that’s a victory. 

“At one percent, my return is certainly better than the rate being paid on savings accounts when I decided to buy my Premium Bonds.

“The best I could find back in March 2021 was about 0.51 percent.

“But from another point of view, it’s a disappointment. 

“The number of bonds I was able to purchase means that I may have been able to expect a slightly higher rate of return than the one percent prize rate.”

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Bearing this in mind, the expert states he has chosen to bring his Premium Bonds journey to an end.

This is due to rising interest rates generally, which are now providing attractive savings options elsewhere.

Many people may now be prompted to consider whether Premium Bonds are right for them.

NS&I says Premium Bonds are “great” for those who:

  • Want to win tax-free prizes up to £1million
  • Have £25 or more to save
  • Want to make the most of tax-free saving
  • Want to buy a savings gift for children under 16.

The option is perhaps less suitable for those who want a regular income or are looking for guaranteed returns.

Notably, NS&I also states Premium Bonds are not for those who are “concerned about inflation”.

Inflation is currently soaring to 40-year-highs, meaning purchasing power will reduce over time.

It means money held in low-paying interest rate accounts will erode.

As a result, looking for high interest rate accounts will be a priority for many Britons.

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However, that is not to say Premium Bonds will no longer be suitable for Britons.

Some will be comfortable in sacrificing an interest rate for the chance of potentially securing the £1million prize.

Ian Ackerley, NS&I Chief Executive, recently commented on the increase to the prize rate fund.

He said: “The new prize fund rate ensures that Premium Bonds are priced appropriately when compared to the interest rates offered by our competitors. 

“It also ensures that we continue to balance the interests of savers, taxpayers and the broader financial services sector.

“Premium Bonds customers will benefit from the chance to win a further 1.4 million tax-free prizes each month, as well as the peace of mind that customers get with 100 percent of their NS&I savings being backed by HM Treasury.”

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