Premium Bond prize rate to fall: should you look at alternatives?
The odds of winning a prize from Premium Bonds will worsen from December, so is now the time to consider moving your money into a savings account paying more reliable returns?
The prize fund rate for Premium Bonds will drop to 4.15% for the December draw, down from 4.40% currently, with odds of winning changing to 22,000 to 1, down from 21,000 to 1, NS&I has announced. The changes will affect more than 24 million bondholders, who collectively have over £125 billion invested in Premium Bonds.
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It’s important to remember that the prize fund rate is only an estimate of the average amount you could earn on any money you deposit in Premium Bonds. It doesn’t provide any kind of guarantee as to the returns you’ll actually get from Premium Bonds, so you could end up with much less than this or - if you’re very lucky indeed - more.
Sarah Coles, head of personal finance, Hargreaves Lansdown said: “The Premium Bond prize rate has finally been hit with the business end of the savings rate scythe, as NS&I has followed the rest of the easy access savings market by cutting the chances of a win.
“This was always going to happen eventually. NS&I has a duty not to overpay for the money it raises for the Treasury, which means the prize rate needs to be middle of the pack within the easy access savings market. After the Bank of England rate cut, these have been heading downhill, albeit impressively slowly. Moneyfacts figures show the average easy access account is currently offering 3.04% - compared to 3.13% two months ago, and Premium Bonds have finally succumbed.”
If you’re looking for consistent returns on your savings, then a savings account may provide a more reliable alternative to Premium Bonds. According to Moneyfactscompare, digital savings provider Chip currently tops the chart of easy access savings accounts, with its Easy Access Saver account paying an annual equivalent rate (AER) of 5.00%. This rate includes a 0.93% bonus for the first 12 months. Similarly, another digital provider, Sidekick Money, pays 4.89% AER on balances between £1 and £85,000 held in its Instant Access Cash Reserve 1 account, which includes a 0.55% bonus for 12 months.
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That said, Premium Bonds are still likely to appeal to those who want to be in with the chance of winning big, however high the odds of this happening might be. December’s draw is expected to have over £435 million in the prize fund with over 5.7 million prizes ranging from two £1 million prizes to over 1.5 million £25 prizes. All prizes are tax-free.
Laura Suter, director of personal finance at AJ Bell, said; “If the savings rates on standard accounts still don’t excite you then you can gamble on winning one of the top Premium Bond prizes – after all, someone has to win it.
“However, anyone in this camp needs to be aware that they could win nothing, and so get no return on their money. Equally, your chances of winning depend on how much you hold in Premium Bonds. So, someone with £100 saved is much less likely to win than someone who has £20,000.”