Premium Bonds – big thing one in three NS&I holders are getting badly wrong | Personal Finance | Finance

Premium Bonds are one of the nation’s most popular savings products. Promising complete Treasury-backed security, penalty-free access to your money if needed, and tax-free earnings incentives on… winnings that may never transpire? A new analysis from Octopus Money found the average time to win a first prize in 2024 was 3.5 years.

Yet nearly one in three people expect to win within six months. While the appeal lies in the idea of a risk-free, tax-free payout, the reality is that most people never win anything at all. And when they do, it’s often underwhelming. Last year 88% of winners took home less than £2,000. Only 0.32% won more than £10,000. Meanwhile, those with the largest holdings statistically took home the most.

For those unfamiliar with the product, Premium Bonds are sold by National Savings and Investments (NS&I). You buy them for £1 each, with a minimum purchase of £25 and a maximum of £50,000. Instead of earning interest, each £1 bond is entered into a monthly prize draw, with tax-free prizes ranging from £25 to £1million.

It sounds positive that, per month, more than 5.9 million of these prizes are handed out. What takes the shine off is that more than 131 billion Bond numbers are in the running to win them. My 89-year-old grandad bought Premium Bonds when they first became available in 1956. They were initially launched to encourage more people to start saving again after the Second World War. In 69 years, he has never won a prize.

But, this isn’t to say that there isn’t any value in holding some money in Premium Bonds – hope is a positive attribute, and there are nearly six million winners every month. Some have miraculously won five-figure sums from holdings of as little as £50.

The point really is that, based on statistics, it’s better not to put all your eggs in one basket. If you’re someone who holds your life savings in Premium Bonds, the chances are that you could have made a significant sum more by keeping the money in a top-paying easy access, fixed-rate savings account or ISA. Or even a mid-range one, given that, if you don’t win a prize, money held in Premium Bonds does not earn interest.

Compare savings accounts on websites like Moneyfactscompare.co.uk, which show top interest rates based on your deposit. If you’re frustrated by poor Premium Bonds returns and want your savings to work harder, consider diversifying – move some funds into an interest-bearing savings account. The best mix depends on your goals, but spreading savings is often wise. If you’re unsure, consult a financial adviser; Unbiased.co.uk can help you find regulated independent advisers in your area

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

DEAL OF THE WEEK

For £4.99, people who work in emergency services, the NHS, the social care sector and the armed forces – and retirees in some of these fields – can register for two-year access to more than 15,000 discounts across large retailers and small businesses. Enjoy up to 25% off bills in restaurants such as Cafe Rouge and Bella Italia, or up to 30% in retailers like Karen Millen. You can register and purchase a membership online at bluelightcard.co.uk

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

Hundreds of thousands of UK savers could face unexpected tax bills as rising interest rates push more people over the Personal Savings Allowance (PSA). Research by Paragon Bank forecasts more than 800,000 people to receive letters about tax owed on savings interest this year. The PSA lets basic-rate taxpayers earn £1,000 of interest tax-free per year, and higher-rate taxpayers £500, but these limits haven’t changed in over eight years.

With today’s higher rates, even modest balances can now breach the allowance, especially with fixed-rate accounts, where interest is often paid in a lump sum at maturity and taxed all in one year.

For example, a higher-rate taxpayer with just £3,500 in a three-year fixed-rate account at 5% could exceed their PSA when the interest is finally paid out. To avoid this, look for accounts that pay interest monthly or annually instead, spreading payments across tax years.

Or, you can use a Cash ISA, where interest is always tax-free (at the moment, up to £20,000 can be saved per tax year). Also, keep an eye on your total employment or pension income, as moving into a higher tax band reduces your allowance.