I was tidying my documents the other day (yes, I do eat my own cooking 🙂 ) and came across an old Premium Bond certificate that I received as a gift around the time that I was born.
With fingers firmly crossed I checked the website to see if I was a lucky winner, and…… I wasn’t.
Which means that in the past 46 years that I have held them, I have won absolutely nothing in Premium Bond prizes.
This inspired me to look more deeply into the merits of Premium Bonds as an investment.
1.4% interest rate, but most get far less than this
The rate of interest on Premium Bonds is based on a monthly prize draw, currently the annual prize rate is a whopping 1.4%.
This means that, for every £1,000 invested in Premium Bonds, you would, on average, receive £14 a year in interest/prize money.
Except, in practice, this is impossible, as the smallest possible prize is £25. This is worth bearing in mind if you are considering buying Premium Bonds for a child/grandchild (it probably explains my lack of winnings over the years).
In reality however, even if you did get 1.4%, you would still be losing money in real terms, as inflation in the UK is currently 2%.
Want to make sure that you are getting the most from your savings and investments? Schedule a time and date for a non-committal chat.
Premium Bonds are guaranteed
This used to be one of the big selling points of Premium Bonds. They are issued by NS&I which is owned by the UK Treasury after all.
However, these days, all UK regulated savings accounts are protected by the Financial Services Compensation Scheme, which covers up to £85,000 per person, per institution.
In comparison, the maximum that can be put into Premium Bonds is £50,000, meaning that even the safety factor isn’t such a big deal.
While there is a certain allure in claiming a “big win”, Premium Bonds are nowhere near as good as they used to be and there are certainly better ways to allocate savings.
There is currently £61 million in unclaimed Premium Bond prizes, so if you do have some already, do check their website. You never know…