Friday, December 3

Martin Lewis: Premium Bonds can beat easy-access savings, but you’ll be better off fixing if you can

Premium Bonds may beat easy-access accounts for savings over £4,000-but don’t expect to earn the headline 1% rate

NS&I Premium Bonds are a savings account you can put money into (and take out when you want), where the effective interest paid is decided by a monthly prize draw. You buy £1 bonds and each has an equal chance of winning, so the more you buy, the more your chances improve. See our Premium Bonds guide for full details.

However, Martin explained that although the Premium Bonds prize fund is 1%, that’s not what you should expect to earn. For example, if you had £100 in Premium Bonds, it’s actually impossible to earn 1%, because the smallest prize you can win is £25 – so it’s all about the probability. He added: “For everybody who wins £1 million, a lot of bonds must pay nothing.”

That said, Martin continued that the more bonds you have, the more you could expect to win. He noted: “If you’ve got up to around £1,900 in, with typical luck you’ll win nothing. Then it sharply rises and keeps getting higher, until you get to the £50,000, where with typical luck you’d win 0.9% or £450 a year.”

Contrasting this with the top easy-access savings account offering 0.67% interest, Martin said that most people with over £4,000, with typical luck, may be better off with Premium Bonds.

Use our Premium Bonds Calculator to see how much you can expect to win and how likely you are to beat normal savings, depending on your circumstances.

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