Millions of Premium Bonds holders are seeing no returns on their savings as the vast majority have never won a penny from the popular savings product, new data suggests.
Around 63% of people who have Premium Bonds (almost two-thirds) have never won a single prize from NS&I’s monthly prize draw, a Freedom of Information (FOI) request by AJ Bell found.
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The average holding among those who have never won a prize is just £106.79, according to NS&I data. Meanwhile, the average holding for those who did win was £23,397, a separate FOI found in April.
Are Premium Bonds worth it?
Premium Bonds remain extremely popular for the lure of the £1 million jackpot, even though most people don’t win a prize. Around 22.7 million people hold them, with £127.7 billion sitting in these accounts at the end of 2024.
The data shows that savers with small Premium Bonds savings are far less likely to win prizes of any value, with the lion’s share going to people who hold much more.
The money held in Premium Bonds will slowly be eroded by inflation if no prizes are being won as NS&I does not pay a traditional interest rate on Premium Bonds balances.
If savers were to put the money into the best savings account on the market at the moment instead, they could earn up to 5% interest on their holdings.
However, while their money would be growing at a consistent rate, they would entirely remove their chances of winning up to £1 million in a Premium Bonds prize draw.
Laura Suter, director of personal finance at AJ Bell, said: “Those 13.7 million people with a balance under £100 represent over 60% of all holders, but only 0.1% of all the money held in Premium Bonds.
“In contrast, just 5% of holders have the maximum £50,000 balance, but they account for 50% of the total value of all Premium Bonds in circulation.
“Put simply, if you’re one of the millions of people with a small amount of money in Premium Bonds, the odds are stacked against you.”
Should you give a child Premium Bonds?
One of the benefits of Premium Bonds is that you can gift Premium Bonds to your or a loved one’s children.
However, Suter at AJ Bell, suggests this may not be the best use of your money as small pots have very low chances of winning.
“Premium Bonds have long been perceived by parents and grandparents as a safe store of a few quid, often gifted when a child is born or for birthdays in the hope that they could be one of the lucky winners of one of the top prizes,” Suter said.
“Unfortunately, unless they are saving large amounts they’re unlikely ever to see that dream become a reality, and may not earn any return whatsoever.”
Those who want to give money towards a child’s future shouldn’t hope for the best with Premium Bonds, Suter suggests. Instead, it may be worth considering opening a Junior ISA and regularly putting money into it to grow.
With a Junior ISA, parents and grandparents invest up to £9,000 a year in either cash or stocks and shares, with the money being in the child’s name.
Like other types of ISAs, any gains or interest earned is tax-free.
Suter said: “A parent who had put just £25 a month into the MSCI World index of global companies 18 years ago when their child was born would be handing them £17,700 on their 18th birthday. In other words, that translates to a meaty annualised return of 10.1%.”
She added that while many people may feel uncomfortable at the prospect of putting money into the stock market for their child, “history shows that over the long term investing, even in something low maintenance such as a global tracker fund, can outpace cash and inflation”.
Suter caveated that this does not mean that everyone should ditch safer assets like bonds, or stop saving in cash. However, she pointed out that as investments in a Junior ISA could be held for as long as 18 years, “there’s less reason for them to hold cash savings”.
“Ultimately, you need to feel comfortable investing on behalf of a child before making the leap, so it’s important to understand what you’re investing in before doing so,” she added.
What are Premium Bonds?
Premium Bonds are one of the country’s most popular savings vehicles, with around 23 million people holding money in them in the UK.
One of the reasons for their popularity is that instead of earning a set interest rate like you would with other accounts, you are instead entered into a monthly prize draw with the chance to win between £25 and £1 million.
If you win the jackpot, you’ll be paid a visit by ‘Agent Million’ to inform you of your newfound fortune. Meanwhile, other winners can check for Premium Bonds prizes online.
For every £1 you have invested in Premium Bonds, you get one chance to win a prize. In August’s Premium Bonds prize draw, the odds of winning were 22,000 to 1 for each pound put into the savings vehicle.
You do not need to pay any tax on the prizes that you win from Premium Bonds holdings, and you can save up to £50,000 in them.
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