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Are Premium Bonds worth it?

champagne 3552652 640From this month, you can invest in Premium Bonds for just £25. And in another rule relaxation, you can now buy Premium Bonds for any under 16 year old – not just a child or grandchild – and you can also set up a regular monthly savings plan.

But should you bother with Premium Bonds? Here are our thoughts on the pros and cons of the bonds for adults and children.

Pros
1. Premium Bond prizes are tax free.
2. You can win up to £1 million.
3. Your money is totally safe – you can get back your stake whenever you like. This is better than on ordinary savings accounts with UK banks and building societies where your money is guaranteed up to £85,000.
4. Unlike the lottery, Premium Bond prizes can be claimed for ever – there are unclaimed ones dating back more than 50 years.

Cons
1. While the chance of any one £1 bond winning a prize is 24,500 to one, the possibility of a single bond winning one of the two million pound monthly jackpots is one in 37.28 billion. To put that into context, the population of the planet is about 7.5 billion.
2. There is no guarantee you will win anything on Premium Bonds. While the return on the prize fund is currently 1.4%, that doesn’t mean you’ll get that on your money. You might win a lot – or nothing at all.
3. While your money is 100% safe, if you don’t earn enough in prizes over a year to beat inflation (currently 2.1%) then you’re effectively losing money.

So what’s the verdict? It all depends on how lucky you think you are. With interest rates still pretty low on savings accounts, you might think it’s worth taking a chance on Premium Bonds. I’ve known people use Premium Bonds for parking money that they absolutely can’t risk (and so can’t put it in shares or investments) and will need in the near future – tax money, deposits for property purchases for example.

But if you don’t need the money quickly – and can stomach some risk – then investing may well be better. And if you want safety but with a definite return, then a savings account might be a better bet. You can find the best deals on comparison sites such as Moneysupermarket.com* and Comparethemarket.com* or statistical experts such as Moneyfacts.

See our guide to investing here.

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Monday, 22 April 2019