Is June the time to buy Premium Bonds?
Premium Bond prizes range from £25 to £1m, but the odds of winning can feel very small compared to the rate savings accounts offer right now.
Over 24m people in the UK own Premium Bonds, a savings vehicle offered by Treasury-backed National Savings and Investments (NS&I).
Winners for June are due to be announced over the next couple of days, with two lucky bondholders in for a million-pound prize.
But should you buy into Premium Bonds, or are you better off looking for a different place for your savings?
What are Premium Bonds?
Regular savings accounts are paying up to seven per cent at the moment, though that rate is likely to come down as interest rates fall.
But unlike savings accounts, Premium Bonds don’t pay a monthly rate. Instead, holders are entered into a monthly prize draw where they can win prizes between £25 and £1m, tax free.
They have a minimum investment of £25, and you can keep purchasing them until you get to £50,000 – the maximum holding level.
Your money won’t be earning any interest, but you’ll get a bond number for every £1 you’ve invested, increasing your chance to win a prize the more money you invest.
However, you’ll have to hold them for a full month for them to be included in the draw. You can withdraw your money whenever you want, without a penalty.
If you want to buy Premium Bonds, you can do so directly from the NS&I website or by phoning them up. If you want to sell them, you just cash them in and get the money straightaway.
Every month NS&I’s Electronic Random Number Indicator Equipment – Ernie for short – randomly selects prize winners. The odds of winning are 22,000 to 1 for every £1 bond in the draw, and the annual prize fund rate is 3.80 per cent. That’s for all Premium Bonds. No prize is guaranteed.
This is significantly lower than the current highest paying savings account. So why are they so popular?
Should you buy Premium Bonds?
NS&I is government-owned and backed by the Treasury, making it a very safe place to put your savings – thus its appeal. It means it can never go under, risking your money.
If another institution were unable to give you your money back, you’d have to claim it back via the Financial Services Compensation Scheme, which protects up to £85,000.
However, most UK-regulated savings accounts are protected up to this amount now, meaning you could potentially be earning more interest on more money if you opted for one of these.
However, some people like the appeal of a draw as well as the safety aspect, plus the fact that the winnings are tax-free.
June’s announcement is just around the corner. In May, two prizes of £1m were awarded to winners in Derbyshire and Suffolk. 79 prizes of £100,000 were awarded.
If you buy them now, you’ll have to wait until July to see if you win anything, but you might get lucky.
However, it might not be the place to store all your money, given the rates on vehicles like ISAs and other savings accounts.
Automate your savings with Chip
If you’d rather not think about manually transferring money into Premium Bonds each month, you could use an app like Chip. Chip is an automated savings app that analyses your spending patterns and “sweeps” any spare cash into a savings goal of your choice – including Premium Bonds.
Once set up, Chip will round up your transactions (or calculate a small extra amount) and automatically buy Premium Bonds on your behalf. That way, you keep your savings routine running in the background without having to log in to NS&I every month.