Rock bottom savings returns are prompting some to consider alternative homes for their cash, including Premium Bonds which offer the chance to win a £1m jackpot each month.
The Bank of England cut the base rate to just 0.1% in March in an attempt to shore up the economy which has led numerous savings providers to reduce their savings rates. According to financial website Moneyfacts.co.uk, the average easy access rate has reduced from 0.59% in January to just 0.24% in July, whilst the average easy access ISA rate has reduced from 0.85% in January to 0.37% in July.
Although Premium Bonds don’t pay any interest, they have a prize fund rate of 1.4%, which is supposedly the average amount bonds pay out. Bear in mind that the odds of each £1 bond number winning a prize is 24,500 to one, and there are no guarantees that you’ll win any prizes.
Helen Saxon, Banking Editor at MoneySavingExpert.com, said: “With many savings rates plummeting in recent months, and NS&I bucking the trend by cancelling its planned rate cut, it’s no surprise that people are flocking to Premium Bonds.”
Research by MoneySavingExpert.com found that the month after the Bank of England base rate cut, savers pumped £1.5 billion into Premium Bonds. This is the highest number of bonds bought in one month since December 2006, when £2 billion worth of bonds were bought so they could be entered into a special 50th anniversary draw with five £1 million pound prizes.
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How do Premium Bonds work?
Premium Bonds offer bondholders the chance to win a £1m jackpot every month, There are more than three million other cash prizes to be won every month as well, ranging from £25 up to £100,000, with winners picked at random by ERNIE (Electronic Random Number Indicator Equipment).
Jill Waters, retail director at NS&I, said: “Premium Bond holders can choose to have their prizes paid directly into their bank account, or to have any wins reinvested up to the maximum holding amount of £50,000 by registering for NS&I’s online services with a valid email address or mobile phone number. Money put aside each month can quickly grow into a small nest egg, with the added bonus of a potentially life-changing prize.”
The minimum amount you can invest in Premium Bonds is £25, while the maximum amount you can invest is £50,000. According to NS&I, more than 94,000 customers have invested at the new minimum investment amount of £25 since it was lowered from £100 in February 2019. You can take your money out of Premium Bonds at any time, and because NS&I is backed by HM Treasury your cash is 100% secure.
Ms Saxon said: “If you do have money to save and you're looking for a decent rate and thinking about Premium Bonds, it’s important to remember that the advertised 1.4% prize rate is just an indication, and it’s possible you could win absolutely nothing. But, with savings languishing at very low rates, if you’re happy to take a chance then Premium Bonds aren’t currently a bad place to put your money.”