Savers will be able to sink an extra £10,000 into premium bonds from tomorrow, when National Savings and Investments (NS&I) increases the maximum permissible holding for the first time in 11 years, from £30,000 to £40,000.
Under changes first announced in March’s budget, they will also have a greater chance of winning £1m from August, when the state-owned savings bank reintroduces a second monthly top prize.
The NS&I said that any investment above £30,000 would increase customers’ chances of winning tax-free prizes in its monthly draw, when premium bond numbers are selected by its Blackpool-based random number generator, Ernie. A further increase to £50,000 will take place in 2015-16.
Julian Hynd, retail director at NS&I, said: “Premium Bonds are one of the nation’s favourite ways to save.
“Raising the maximum amount that can be invested is good news for customers because the more they invest, the greater their chance of winning a tax-free prize.
“I’m sure many of the 600,000 customers who currently have the maximum holding of £30,000 will want to invest more.”
The total amount invested in premium bonds has increased from £19.7bn in 2003, when the maximum holding was last increased, to £45.7bn today – an increase of 131 per cent.
But the extra monthly £1m prize has not met with universal approval.
Household finance guru Martin Lewis, who founded consumer website MoneySavingExpert.com, said it would adversely impact many of the 21 million-plus premium bond holders.
“While the increase in the amount you can invest benefits some, more million-pound prizes will hurt millions,” he said.
“This increase in the number of top prizes is being made without increasing the prize fund, which is currently 1.3 per cent of the amount held in bonds.
“Quite simply, for every new million-pound prize-winner, thousands of people won’t win the £25 or £50 they rely on for returns.
“More million-pound prizes is a negative skew that decreases the returns for someone with typical luck, and in today’s low-rate environment, people need every penny they can get.”
NS&I are said to be banking on the increase in the maximum holding to balance out the increase in the prize fund in August. Bonds bought after Sunday will first be entered into August’s draw.
Prior to the changes, Mr Lewis hired a post-doctoral statistician to work out the odds of winning a premium bond prize, and hence the expected return on investment.
The results, posted on the MoneySavingExpert.com website, show that some people will win more than average – but not many.
“Put £100 in premium bonds, calculate the probability and 19 in 20 people won’t win a penny over a year, but one in 20 should win £25 or more!” he said.
“If you’re that lucky person, this is a great return. Yet the odds of winning big get very long.”
The odds of any bond winning the top prize were 1 in 47 billion – now presumably 1 in 23.5 billion. The odds of winning a Lotto jackpot, which is usually more than £1m, are 1 in 14 million, although, crucially, you don’t retain the capital, or stake.
Despite the odds, Asia Manzoor, media relations manager at NSI, said the element of chance was a big attraction for many.
“Our customers stay with us for a number of reasons,” she said.
“Some buy premium bonds because they’re a tax-free way of saving, and others buy them for their children when they reach a certain age.
“And there’s always that possibility of winning a million – it’s the luck of the draw.”