If you’ve ever felt short-changed, spare a thought for the 15.9 million people who have held Premium Bonds for 14 years without winning a penny.

Sold by National Savings and Investments (NS&I), Premium Bonds offer cash prizes of between £25 and £1 million every month.

NS&I announce the winners at the beginning of each month. Between April 2019 and March 2020, they paid out almost £1.71 billion prize money to Premium Bond holders. Despite that, 15.9 million savers have bonds which have returned them nothing.

75% of Premium Bond holders had won no prizes since 2007, when records began, despite holdings totalling more than £80 billion between them.

Although Premium Bonds pay out prizes of up to £1 million every month, these figures, revealed by The Sunday Telegraph, suggest that being in it doesn’t mean you’ll win – well, anything.

Premium Bonds can be a fun way to save

Buying Premium Bonds can be a fun way to save money. Instead of offering interest on the money, you enter a prize draw, and have the chance to win tax-free cash. You can choose to take your prize in cash or use your winnings to purchase more Premium Bonds and increase your odds.

How the odds of winning break down

For every £1 bond you own, there’s a 34,500 in 1 chance you’ll win a cash prize. This generates an interest rate equivalent to 1%, and all cash prizes are tax-free.

The minimum amount you can spend on Premium Bonds is £25, and the maximum any individual can hold is £50,000.

The table below shows how the odds break down:

Source: MoneySavingExpert

As with any raffle or lottery, the chance of winning increases with the number of tickets you buy. So, the more Premium Bonds you have, the better your odds of landing the million-pound tax-free prize.

If you like a flutter, Premium Bonds can be a useful way to save. As with any financial decision, it really comes down to how you feel about taking a chance that you might win big, over sticking with a conventional interest rate, or the growth you could enjoy over the long-term.

Premium Bonds can be a suitable solution for some people

Buying Premium Bonds can be a suitable solution for people who want to protect the money they have, and already have too much cash in the bank.

Because the bonds are sold by NS&I, which is backed by the government, your money is 100% protected.

Similarly, the Financial Services Compensation Scheme (FSCS) protects money which is held in bank and building society accounts. This scheme protects deposits up to £85,000 per person, per institution if a provider goes bust.

So, if you have a lot of cash in bank and building societies, Premium Bonds can be an additional way to hold cash without exceeding compensation limits.

However, unless it’s short term, holding this much in cash is generally inadvisable since invested money generally works a lot harder and provides better returns than cash. This is especially true now, when interest rates are close to zero.

Growing wealth with investments is an alternative to a punt on Premium Bonds

Returning to the unfortunate 15.9 million people who have held Premium Bonds for 14 years without winning a penny, what might have happened if they’d invested their money instead?

Historically, investing in the stock market has delivered better returns than holding Premium Bonds. Over the last 25 years, the FTSE 100 has delivered an average total return (including dividend reinvestment) of 6.4% a year.

If you want to grow your cash tax free over the medium or long term, you may be better with a Stocks and Shares ISA.

You can make regular monthly payments in to both Premium Bonds and an ISA, so even if you want to save a small amount each month, an ISA could still be a good solution for you.

If any of the 15.9 million Premium Bond losers had invested £100 in 2007, they could have doubled their money by investing it instead. Thanks to compound growth, £100 invested over 14 years, with 5% growth each year, would now be worth just over £200.

When are Premium Bonds worth the bet?

So, in what circumstances do Premium Bonds become worth the bet?

• The more Premium Bonds you hold, the better your chance of winning. So, if you have £5,000 or more and you want to give it a whirl, you may have a better chance of seeing pay back.
• If you’re saving over the long term, but need access to the money, Premium Bonds may be a better solution than a high street savings account.
• If you pay tax on your savings interest, Premium Bonds may be a better alternative, because cash prizes are tax-free.

Premium Bonds are all about luck. But if you want positive returns and are investing for the long term, investing in the stock market is likely to provide better returns.

Get in touch

If you have cash on hand and are considering whether Premium Bonds would be a suitable solution for you or would like to discuss alternative investment and tax planning strategies, call us on 0800 434 6337.