Why premium bonds were unlucky for 19 million savers this year

Nearly 19 million premium bond savers didn’t win a single award this year, The Telegraph has found.

Although NS&I’s prize money rate has steadily increased over the past year, most account holders have received nothing for their savings, a Freedom of Information Act inquiry found.

Premium Bonds are the nation’s most popular savings product, with savers entering a raffle each month for a chance to win between £25m and £1m.

But of the 23.5 million people who have held bonds for at least 12 months, 18.8 million haven’t gained a penny.

Savers flocked to premium bonds after state-backed bank NS&I announced in September that it would increase its pricing rate from 1.4 percent to 2.2 percent, the largest increase in 40 years.

Since then, another 75,445 savers have opened accounts, figures from NS&I show. The price rate will be raised back to 3pc next month.

It comes as the Bank of England raised interest rates from 0.1% a year ago to 3.5% today.

Over the past year, the number of people with Premium Bond accounts has increased by 411,354, reaching almost 24 million at the end of last month.

But Anna Bowes, of advice site Savings Champion, said: “There will be a lot of people holding small amounts in Premium Bonds and if you’re expecting to get anything like average you need to have the maximum of £50,000. Only then are you more likely to win major awards.”

She said the awards are more valuable to higher-rate taxpayers who are concerned about paying taxes on their savings interest, but they could make more money elsewhere, especially if they’re willing to commit to a longer-term fixed savings contract.

Susannah Streeter, of investment service Hargreaves Lansdown, said premium bonds have attracted savers because they offer the opportunity for a “life-changing win”, the prices are tax-free and the money in premium bonds is 100 percent backed by the Treasury.

She said: “Premium bonds will be even more enticing to people desperate for victory amid the cost of living crisis. But they must understand what they are giving up.”

She warned that the odds of winning are still 24,000 to one, adding, “The average person with average luck is still not going to win anything.”

Instead of keeping their money in premium bonds, most savers could make a lot more by putting their money into an interest-guaranteed account.

According to Savings Champion, an analyst, the top easy-access account pays 2.86 percent in interest, up from 0.75 percent in December 2021.

A saver holding £50,000 in the highest paying account would have made an estimated £749 over the last 12 months.

On an average account with easy access, the same deposit would have returned £214. According to Moneyfacts, another analyst, the average account is now paying 1.54 percent, up from 0.2 percent last December.

Some premium bondholders keep money in accounts to save on taxes, but even with an Isa, typical returns would have been higher. Taxpayers with higher tax rates can earn £500 in savings interest before having to pay tax. For property taxpayers the amount is £1,000.

A saver with £20,000 in the top floating rate ISA account – the maximum – would have received £243 in interest over the past year, while the average floating rate ISA would have paid £106.

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