Premium Bonds: Are they worth it?
Premium Bonds were first introduced in 1956 and now around 23 million people in the UK own one. Not sure what a Premium Bond is? Well, it is a lottery bond that is issued by the UK’s government’s National Savings and Investments agency. These bonds are entered into a regular prize draw which the government promise to buy back on a request for their original price. You put money into them (you can this take out whenever you want) and where the interest paid is decided by a monthly prize draw. You buy £1 bonds and each of them has an equal chance of winning, so the more that you buy, the better your chances are.
Unsure whether to get yourself invested in a premium bond? We have put together a guide to find out whether they are worth it.
Premium Bonds are the UK’s largest savings product with people saving over £68 billion on them. But, rates have dropped from 1.25% to 1.15% and most people’s savings are now tax-free. Does this mean the Premium Bond has lost their shine?
Who are they best suited for:
- People who want the chance every month to win a £1 million jackpot and other tax-free prizes
- Those who have £100 or more to invest
- If you want 100% security for their money
Not for savers who:
- Want a regular income
- Are looking for guaranteed returns
- Concerned about inflation eroding their savings
Premium Bonds are a lot more interesting compared to other traditional savings products and when it comes to security or those troubled economic times people tend to turn to bonds because they are guaranteed to be backed by the Government Treasury as mentioned before, meaning they are 100% safe.
You will not earn any regular income on your bonds and most people who buy them will only earn a very small amount on the money that was contributed. Now unless you want to win one of the bigger prizes then your return is quite unlikely to beat inflation, essentially meaning that your money probably wont grow fast enough for you to keep up with rising costs as well as having the same buying power over time because of inflation. The odds of you winning £25 for each £1 bound number that you buy is 26,000 to one, whilst the odds of you winning £1 million is 26 million to one. So, if you are looking for a larger guaranteed return, then you will be much better off with different types of savings.
Evaluate For Yourself
Premium Bonds do protect your money and if even the returns don’t look too great then it is fine to put a portion of your money in them as long as you are aware that it will be for fun more than the returns. Before deciding anything get a calculator out and look at your odds. If you’re one who likes to take a gamble, then go for it. Investing in Premium Bonds isn’t a bad thing, but you need to consider everything and look at each detail with a financial eye.
If you’re still need some more advice on Premium Bonds check out this guide by the Money Advice Service.