Premium bond holders will have more chances of winning prizes after changes announced this week. From September there will be more prizes up for grabs for the 22 million people who hold the government-backed savings bonds. This is the second time in two months National Savings and Investments (NS&I) has upped the premium bond prize fund rate, with one expert saying that the UK government’s savings bank is “pulling out all the stops” to attract more cash.
When you buy premium bonds, you are entered into a monthly prize draw in which you can win tax-free sums between £25 and £1m. NS&I is increasing the prize fund rate – the proportion of the total invested amount paid out in prizes – from 3.8% to 4.35% a year with effect from September’s draw. It was previously upped from 3.3% to 3.8% with effect from July.
As a result of the latest change, the odds of winning with each £1 bond number will improve from 22,000-1 to 21,000-1. NS&I estimates there will be 308,000 more prizes up for grabs in the September draw than there were in this month’s draw, with the prize pot increasing by about £63m to £497m. Crucially, it has boosted the number of higher-value prizes and trimmed the number of £25 ones.
For example, the number of £100,000 prizes will rise from 83 this month to an estimated 95 in September, while the number of £50,000 payouts is going from 165 to 192. Meanwhile, the number of £25 prizes is being cut from just under 2.3m to about 1.7m. One of the advantages of premium bonds is that they are tax free, which is particularly good for higher-rate taxpayers.
If you held the maximum amount of bonds – £50,000 worth – and won the equivalent of 4.35%, that would amount to £2,175 tax free. But one big downside is that they do not pay any interest and so are more vulnerable to inflation than other savings. And while you could strike it lucky and scoop a life-changing sum, there is no guarantee you will win anything at all.
A freedom of information (FoI) request submitted by the investment platform AJ Bell earlier this year revealed that almost two-thirds (62%) of all premium bond holders had never won a prize. If you want a guaranteed return, you should shop around for a decent bank or building society savings account. This week, there were easy-access savings accounts available paying up to 5% interest.
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