How do Premium Bonds compare to returns on other forms of saving?
We’re always keen to ensure whatever cash our clients retain is held in a safe, competitive and tax efficient manner.
Ideally the interest rates would at least match prevailing inflation, but that’s probably unrealistic at present.
Cash ISAs can offer safe and tax efficient options, but frequently rates can be disappointing, especially when ‘sweetener’ deals end and the interest rates revert to something very uncompetitive.
The recent announcement that National Savings & Investments (NS&I) will be increasing the Premium Bond prize rate from 3% to 3.15% in February 2023, a rate this high not seen since May 2008, caught our eye and reinforced why we frequently recommend Premium Bonds (maximum £50,000 per person) as a good option.
The odds of winning will stay the same, at 24,000 to one, but savers will have more opportunities each month to win prizes worth £50 to £100,000 (tax-free).
There will be an extra three £100,000 prizes up for grabs, as well as another six £50,000 prizes and 12 more £25,000 prizes.
The number of £50 prizes will jump from 1.16 million to 1.28 million, while the number of £25 prizes will drop from 2.62 million to 2.38 million.
There will be an extra 31 prizes worth £10,000 and another 61 prizes worth £5,000.
The total size of the prize pot will grow from £299m to £314m.
Having said all of the above, there are some frequent objections we hear to Premium Bonds, so lets try and dispel some of the common myths.
5 Premium Bonds Myths
1. Only new Premium Bonds win prizes
Each £1 Bond has an equal chance of winning, regardless of when or where it was bought.
The power behind Premium Bonds has been upgraded to the next generation – ERNIE 5. Unlike previous versions which used thermal noise to produce random numbers, ERNIE 5 is powered by quantum technology, which uses light. This new technology allows ERNIE to produce enough random numbers for a monthly prize draw in just 17 minutes.
And so by using light, ERNIE 5 generates random numbers that are matched against eligible Bond numbers to determine the lucky winners. And because it’s random, every Bond number, whether it has 8, 9, 10 or 11 digits, has a separate and equal chance of winning a prize.
For example, in the last three draws about 6% of all prizes have been won by bonds purchased before January 2005. Bonds bought more recently may seem to win more often because 98% of Bonds have been bought since the year 2000.
2. Old Premium Bonds are left out of the draw
Winning numbers are generated randomly and then matched against eligible Bond numbers afterwards – numbers aren’t entered into or stored in ERNIE so it’s not possible for any Bonds to be left out of the draw. Even Bonds bought as far back as 1956 are still eligible for the draw.
3. Premium Bonds from the South-East are luckier than elsewhere
If it seems that more prizes are won by holders in the South-East, that’s because there are more Bonds held there compared to the rest of the UK. However there have been winners of the £1 million jackpot from every region of England, as well as in Scotland, Wales and Northern Ireland.
4. You can only win if you have the maximum amount invested (£50,000)
Jackpot winners have had different amounts invested over the years – one of this month’s winners had a holding worth just over £4,000, and one very lucky winner won in 2004 the jackpot with just a £17 holding!
5. Bonds need to be bought in a block to increase chances of winning
Since no Bonds are actually entered into ERNIE, it doesn’t ‘know’ anything about the Bonds themselves, such as whether the Bond number is part of a sequence of numbers or not. In the January draw ERNIE generated 12.8m numbers, which were matched up to almost 5m eligible bonds.
Hopefully the above has dispelled some of the myths around the world of Premium Bonds, and maybe Agent Million will visit you soon!
And if you have any questions about your investments, please get in touch or send a message via the form below.
