Premium Bonds: Are They Worth It?

Ever since I was a teenager, my parents and grandparents have been buying Premium Bonds for me. Birthday and Christmas gifts tend to consist of an envelope with proof of a new deposit and thanks to relatives’ generosity I’ve managed to build up £3,000 in total in Premium Bonds over the years. I’ve had my fair share of modest wins too and I think I must have won around £150 in the last 12 months.

So, what are these magical bonds and are they worth having? Before you ditch the National Lottery in favour of Premium Bonds or transfer your life savings over in the hope of a big win, read on to see how I rate them compared to other savings options(Cash ISAs, The Lifetime ISA, Help to Buy ISA, current accounts and the lottery – that’s obviously not a savings option but you’ll understand why it’s included later).

*Please note that I’m not a financial advisor or money expert. I’m just a girl with a blog. So, while I hope you gain great value from this post, please don’t consider my words to be actual financial advice*

What are Premium Bonds?

Nearly half of the UK population have Premium Bonds and it’s estimated that there are more than £59 billion in them in total.

Premium Bonds allow you invest your cash and benefit from the opportunity to win both large and small cash prizes. Each month millions of investors are picked at random and win everything from £25 to £1 million.

Each month:

2 people will win £1 million
4 people will win £100,000
9 people will win £50,000
15 people will win £25,000
Millions of others will win smaller prizes

The more money you’ve invested into the bonds, the more chance you have of winning.

The table below shows you your chances of winning a prize based on each £1 bond.

Prize	Number of winners per month	Odds of winning per £1 bond
£1 million	2	1 in 29,557,386,997
£100,000	5	1 in 8,444,918,861
£50,000	11	1 in 3,284,131,569
£25,000	22	1 in 1,477,858,648
£10,000	52	1 in 642,547,160
£5,000	107	1 in 297,056,938
£1,000	1,330	1 in 38,662,076
£500	3,990	1 in 10,711,057
£100	18,209	1 in 2,491,332
£50	18,209	1 in 1,409,598
£25	2,231,691	1 in 26,000
£0	59,112,048,315	Virtual certainty

The figures above may look pretty depressing but keep in mind that you’re going to have more bonds than the table suggests. You must hold at least £100 in your Premium Bonds account and if you hold thousands, your chances of winning increase further.

So how do Premium Bonds measure up to other savings and investments? Let’s weigh up the pros and cons…

Premium Bonds vs Cash ISAs

There once was a time when Cash ISAs were a great way to save. You could save a substantial amount of money in them each month and benefit from tax-free interest on top of your savings. However, with interest rates plummetting to pathetic levels, Cash ISAs have really lost their appeal over the last few years.

Due to laziness, I must admit that for the majority of my deposit saving journey I’ve saved my money in an ordinary Cash ISA with Halifax. And with interest standing at just 0.25% in this ISA, it’s clear that I’ve made a serious error.

I’ve benefited more in the last 12 months from Premium Bonds than I have from saving in a Cash ISA. Obviously these winnings are not guaranteed so it’s a bit of a gamble, but this gamble has certainly paid off for me.

Premium Bond summary:

There’s a chance you could win money, but there’s no guarantee.

Cash ISA summary

You’re guaranteed to receive a certain amount of interest, but you’ll be lucky if it buys you more than a Mars bar.

Winner:

Premium Bonds (compared to traditional & low interest cash ISAs)

i have an isa and it offers me a quarter of a per cent interest. tax free though, that interest. that 60p a year is NOT taxed

— superman disliker (@joelgolby) March 16, 2016

Premium Bonds vs The Lifetime ISA

Even though I personally prefer Premium Bonds to traditional Cash ISAs, there’s a new kid on the Cash ISA block that’s thrown a spanner in the works. Thanks to the introduction of the new Lifetime ISA which rewards you with a £1,000 government top up for every £4,000 you save yourself, ISAs are starting to look significantly more promising.

Providing you abide by Lifetime ISA criteria, the money from the government is, to an extent, guaranteed. You’ll also receive interest on your savings. Since winnings on Premium Bonds are not guaranteed, I personally believe this is a much preferable option to NS&I’s savings offering.

However, since money saved in the Lifetime ISA can only be used towards your first home or retirement Premium Bonds are much more flexible and can be used on absolutely anything.

Premium Bond summary:

Flexible savings that can be used for anything & you’ve got the potential to win money.

Lifetime ISA summary:

Savings can only be used on your first home or your pension but you’ll receive a guaranteed huge 25% boost from the government along with interest.

Winner:

The Lifetime ISA

Take a look at my Lifetime ISA guide to learn more about this deposit-saving option.

Premium Bonds vs The Help to Buy ISA

The Help to Buy ISA is very similar to the Lifetime ISA. You’ll still receive a 25% top-up from the government but you’ll receive it on a much smaller amount. While you can save up to £4,000 a year in the Lifetime ISA, you can’t save more than £2,400 of your own funds in a Help to Buy ISA annually (though you’ll be able to open the account with an additional £1,000 in year one).

Despite the stricter savings limit, if you’re saving for a home, the Help to Buy ISA is probably your second best option (after the Lifetime ISA). Providing the government or future governments don’t change the rules, you’re guaranteed to benefit from a 25% top up and interest. With Premium Bonds there are no guarantees.

Premium Bond summary:

Flexible savings that can be used for anything & you’ve got the potential to win money.

Help to Buy ISA summary:

Savings can only be used on your first home. You’ll receive a guaranteed 25% boost from the government and you’ll get interest. You can’t save more than £12,000 of your own money into the account in total.

Winner:

The Help to Buy ISA

Premium Bonds vs Current Accounts

Although current accounts don’t give you the opportunity to ‘win’ big like Premium Bonds do, by being clever and placing your savings in the right accounts, you can benefit from guaranteed interest.

Martin Lewis says: “The fact [Premium Bond] payouts are commonly called ‘wins’ and not ‘interest payments’ is psychologically devious. Comments like “my friend wins £25 every few months” mislead. On clinical evaluation, someone with £5,000 of bonds should ‘win’ £50 a year; that’s £25 per six months (and most will win less than this). Yet the same cash in savings would ‘win’ a guaranteed £66 EVERY year (for basic-rate taxpayers).”

At the time of writing, here are three of the most rewarding current accounts:

Santander 123: 3% on up to £20,000

TSB Class Plus: 5% interest if you have £2,000 or less

Club Lloyds: 4% interest if you have between £4,000 – £5,000

There was once a time when ISAs were the only way to benefit from tax free interest, but since new rules introduced by the government state that basic rate tax payers can now earn up to £1,000 in interest before paying tax on interest, most people are likely to benefit from the full interest rate amount promised by their bank.

Premium Bonds summary:

Opportunity to ‘win’ small and big cash prices. Luck may reward you but there’s always a risk you’ll win nothing.

Savings account summary:

Guaranteed interest providing you make use of the best accounts and interest rates.

Winner:

Savings Accounts

Premium Bonds vs Lottery

Although the potential rewards associated with Premium Bonds are frequently beaten by other savings products, if you think of Premium Bonds as an alternative to playing the National Lottery, you may be onto something.

Technically, if you were to place £2 on the National Lottery you have a higher chance of winning the jackpot than you would if you placed £2 in Premium Bonds.

Martin Lewis says: “Your chance of winning the jackpot per £2 on the National Lottery is one in 45 million, far outstripping the one in over 29 BILLION chance of becoming a millionaire with the same value of Premium Bonds.”

However, placing a large sum of money in Premium Bonds is much wiser than placing a large sum of money on the lotto. It’s less dangerous to invest your money in Premium Bonds rather than the lottery because the money you ‘invest’ is still yours.

Journalist, Dan Hyde adds: “Put the maximum £40,000 into Premium Bonds and you are nearly 2,000 times more likely to win £1m than you are to win nothing. [With this amount saved] the chances of winning the top prize over the next year are 54,504 to one. By comparison, the chances of ending up empty-handed are 104,209,338 to one. “

If you were to put £40,000 on the lottery, most people would rightly call you crazy. Sure, you’ll have a good chance of winning something but you will have paid £40,000 for this privilege. You’ve lost £40k, while the wary Premium Bond owner will still have that money.

With the average Brit spending more than £400 a year on the lottery and scratchcards, I’m sure most people will agree that this money could be better invested elsewhere.