The long-awaited good news is that from June the prize rate is rising from 1% to 1.4%, but the bad news is that your chances of winning £1 million aren’t going to move much from today’s impressively long odds of 1 in 58.91 billion. If anything, they’re going to get worse. If you’ve held your bonds for years – or even decades – it’s worth weighing up whether they’re still the right place for your cash.
The prize rate
The rise in the prize rate is hugely welcome, but has been a long time coming. It had been stuck at 1% since December 2020, and was lagging way behind the savings market after multiple rate rises, so loyal savers haven’t been getting much for their money for a while.
Part of the issue is that Premium Bonds are completely unique. They’re loved by the 21 million people who’ve put their money into them. They offer an unbeatable combination of keeping your money completely safe, and 100% backed by the Treasury, yet it gives you the opportunity to win a life-changing, tax-free prize.
It means there’s nobody they have to compete directly with, so even with a 1% rate, it wasn’t doing a bad job of raising money. Between the April and May draw, the number of bonds rose by over 655 million, which means £655 million more for NS&I coffers. NS&I has a duty to be fair to its savers, but it has to balance that with trying to raise money for the government cost-effectively. So a 1.4% rate looks good now, but if rates rise in future, there are no guarantees the prize rate will rise with them.
It’s also worth looking a bit closer at that 1.4% prize rate. It looks incredibly competitive for an easy-access savings product on the face of it, but it’s worth being clear about what’s actually on offer. You don’t make any interest on money in Premium Bonds, so the only return is through prizes, and these get distributed in a fairly lumpy way. It means those with better-than-average luck will make more than 1.4%, and those with less luck can go decades without a win. In an average year, someone with £1,000 in the bonds will win nothing.
This matters more when inflation is running so high, because if you don’t win enough, the spending power of your money will be eroded far more quickly every month. It means Premium Bonds aren’t right for everyone. If you’re concerned about the fact you might earn nothing on your money, you may be better off with a savings account. However, if your main focus is the chance of a life-changing win, you may be happy to pay the price. There’s no one answer as to whether Premium Bonds are a good idea, there’s only the question of whether they’re right for you.
Chances of a win
The chance of any win at all with a £1 bond has risen to in 24,500, and the chances of a life-changing sum of money are also rising, because the number of £100,000 prizes will rise from six to 10, and the number of £50,000 prizes is up from 11 to 19. However, there are still just two £1 million prizes each month, so the chances of becoming a millionaire are still incredibly small. Unfortunately, as each month passes and more bonds are purchased, the chances of a £1 million win will shrink even further.
Over the years there have been all sorts of conspiracy theories as to how you can improve your odds of winning. Some people think that the newer a bond is, the better chance you have. This came from the fact that in general, when details of big winners are announced each month, more of them tend to be newer. But this isn’t because of a glitch in the system, it’s down to probability. So many more bonds are sold now than in previous decades that more winners were bound to have bought their bonds more recently.
The one way to improve your chances of a win is to buy more bonds. Someone with £1,000 in bonds with average luck will win nothing in a typical year, whereas someone with average luck and £10,000 in bonds will win several times. Likewise, with the million-pound jackpot, if you hold 1,000 bonds, you’ll have 1,000 times the chance of winning the jackpot as someone who only holds one. Of course, before you tie up these larger sums in Premium Bonds, you need to consider the interest you could be earning elsewhere and the value it will lose after inflation.
You can also improve your chances of picking up a win by actually making sure it finds its way into your bank account. Last time NS&I published details, in October last year, there were over 2 million unclaimed prizes, worth more than £73 million. If you think you may have a win you’ve not claimed, you can input your numbers into the NS&I prize checker. And to make sure you never miss any in future, you can choose to have them paid directly into your bank account.
By Sarah Coles a personal finance analyst at Hargreaves Lansdown