Good news: the chances of your premium bonds winning have increased from this month. Bad news: the chances of winning £1 million are falling.
The reason is that, on their 65th birthday, premium bonds have never been so popular. With more than 118 billion of them in the June draw, the chance of a bond winning one of the two £1 million prizes were 59 billion to one. Even if you have the maximum £50,000 of bonds – and more than a million people do – it would still be nearly 100,000 years before you have an even chance of winning it. So if you had bought them along with your cave in Neanderthal times, you might just be due one of the two monthly million-pound prizes now.
From June the interest paid on bonds rises from 1% to 1.4% a year. That interest forms the prize fund each month – almost £139 million in the June draw. So the chance of a bond winning any prize rises from 1 in 34,500 to 1 in 24,500. Almost all the extra money is being put into the smallest prizes of £25: in June more than 4.7 million of them were paid out. With £50,000 worth of bonds you can expect an average of
two prizes every month – that’s £600 a year tax-free, a return of 1.2%, equivalent to 1.5% taxable at basic rate and 2% taxable at 40%.
If you’re a taxpayer and have other savings that use up your annual savings interest allowance (£1,000 a year for basic-rate taxpayers, £500 for higher-rate payers) then putting another £50,000 in premium bonds produces a good return “guaranteed” by the laws of statistics.
Premium bonds are best for higher-rate taxpayers who can buy the maximum. If you only have a thousand bonds you can expect to win £25 once every couple of years but it would be over a millennium before you had an even chance of winning one of the £1,000 prizes. With just £100 of bonds the chance of winning anything is almost zero.
Paul Lewis presents Money Box on Radio 4. QUESTIONS? Send any questions to Paul.Lewis@radiotimes.com. Paul cannot answer you personally, but will reflect them in his column.