# Premium Bonds – are they still worth holding? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2017-12-15 Category: INVESTING Category URL: https://financedigest.com/category/investing Meta Title: Is it time to reconsider Premium Bonds for savings? Meta Description: Review the enduring popularity of Premium Bonds and explore alternative savings options following the BoE's interest rate increase. Tags: featured Tag URLs: featured (https://financedigest.com/tag/featured) URL: https://financedigest.com/premium-bonds-are-they-still-worth-holdinghtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/fd151217-9-1736843141656-compressed.jpg) _**John William Gunn** – Founder and Executive Chairman, SynerGIS Capital PLC_ ![John William Gunn – Founder and Executive Chairman, SynerGIS Capital PLC](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/john-gunn-300x300-1736843141549-compressed.jpg) John William Gunn – Founder and Executive Chairman, SynerGIS Capital PLC Following the BoE’s decision to increase interest rates in early November, some – but not all – savings rates have increased and people are taking the opportunity to review their current asset allocation with advisors. National Savings and Investment (NS&I) have passed on the 25 [basis points raise across all their savings products and also increased the prize fund rate](https://www.financedigest.com/ecb-goes-big-with-50-basis-point-hike-ending-negative-rates-era.html "ECB goes big with 50 basis-point hike, ending negative rates era") on Premium Bonds from 1.15% to 1.40% in time for the December draw. This is a welcome [move and the odds of winning have become](https://www.financedigest.com/bangladesh-moves-up-the-ranks-and-could-become-the-24th-largest-economy-by-2036.html "Bangladesh moves up the ranks and could become the 24th largest economy by 2036") slightly better. However, it could still be the time to [consider your alternative options](https://www.financedigest.com/cryptoverse-is-bitcoin-out-of-the-woods-consider-the-options.html "Cryptoverse: Is bitcoin out of the woods? Consider the options") to Premium Bonds. Premium Bonds were [launched in 1956 and are the UK’s biggest savings product](https://www.financedigest.com/new-product-launches-to-put-the-marker-pens-market-in-a-good-stead.html "New Product Launches To Put The Marker Pens Market In A Good Stead") with more than 20 million people holding £68 billion worth. Each month, the [winning numbers](https://www.financedigest.com/tennis-williams-retirement-on-hold-after-win-over-world-number-two.html "Tennis-Williams retirement on hold after win over world number two") are generated by the ERNIE machine (Electronic Random Number Indicator Equipment). Here are some reasons for their enduring popularity: - Issued by NS&I so 100% guaranteed by HM Treasury - Chance to [win the big £1,000,000 prizes](https://www.financedigest.com/banking-crisis-breakthroughs-win-nobel-economics-prize-for-bernanke-diamond-dybvig.html "Banking crisis breakthroughs win Nobel economics prize for Bernanke, Diamond, Dybvig"). - Monthly, tax-free prizes - Nowadays, you can [service your holding online](https://www.financedigest.com/online-food-delivery-services-market-will-reach-a-valuation-of-over-us-4212-6-mn-towards-2029-end-fmi.html "Online Food Delivery Services Market will Reach a Valuation of over US$ 4,212.6 Mn towards 2029-end: FMI") with reinvestment options available for prizes - A traditional savings product for baby-boomers So far, so good, but the reason for the prolonged popularity of the [product](https://www.financedigest.com/so-you-have-the-dream-job-nice-car-and-big-house-but-is-your-lifestyle-sustainable-do-you-have-the-products-in-place-if-the-worst-were-to-happen.html "So you have the dream job, nice car and big house, but is your lifestyle sustainable? Do you have the products in place if the worst were to happen?") is based on the psychology of the “big prize”. “It could be you” – as the National Lottery said when it launched in 1994– although, as with Premium Bonds, it probably won’t. Looking at Premium Bonds with cold probability, the prize distribution is skewed to the bottom end, 98% are £25 wins, 1.2% £50 wins, the rest £500 to the maximum £1,000,000. You hear more about the winners – pictured with their giant cheques – than disgruntled holders who have never had any wins. The odds of winning the top-prize on a low-stake are up there with winning the National Lottery. The [annual prize rate](https://www.financedigest.com/automotive-gas-charged-shock-absorbers-market-worth-will-reach-us-2-9-bn-in-2021-grow-at-overall-compound-annual-growth-rate-cagr-of-5-0-between-2021-and-2031.html "Automotive Gas Charged Shock Absorbers Market worth will reach US$ 2.9 Bn in 2021, grow at overall compound annual growth rate (CAGR) of 5.0% between 2021 and 2031") – standing at 1.40% from December – is a “mean” average. For the statisticians amongst us, you may well be on that part of the bell curve which receives nothing Other things to consider: - For most savers, the long-term attraction of the HM Treasury guarantee has been overshadowed by the increased [protection provided to savings accounts](https://www.financedigest.com/midlands-accountants-say-its-never-too-early-to-get-financial-protection.html "MIDLANDS ACCOUNTANTS SAY IT’S NEVER TOO EARLY TO GET FINANCIAL PROTECTION") offered by the Financial Services Compensation Scheme. - Their real value is eaten by inflation – [CPI currently stands](https://www.financedigest.com/dollar-stands-firm-while-traders-await-cpi.html "Dollar stands firm while traders await CPI") at 3%. - The introduction of the Personal Savings Allowance from April 2016 means basic rate [taxpayers are able to earn £1,000 in savings income tax](https://www.financedigest.com/self-employed-taxpayers-and-making-tax-digital.html "Self-employed taxpayers and Making Tax Digital") free; higher rate taxpayers up to £500. The longstanding tax-free prize status of Premium Bonds (for the regular-sized prizes) has become less attractive. - If you disregard the chance of the “big win” and hold a savings pot which means you will not earn over the current personal savings allowance, Premium Bonds are unlikely to beat the [top savings rates](https://www.financedigest.com/uk-cabinet-was-not-informed-of-plans-to-scrap-top-rate-of-tax-truss-says.html "UK cabinet was not informed of plans to scrap top rate of tax, Truss says") currently on offer. If you have any Premium Bond holdings, make sure you keep on top of the administration and that you (and your parents) check for prizes, particularly if you have not registered for their [online service](https://www.financedigest.com/tesco-says-online-services-back-up-after-interference-attempt.html "Tesco says online services back up after interference ‘attempt’"). According to NS&I, there are 1,400,000 unclaimed prizes currently worth £57,000,000. It’s probably worth checking. [Premium Bonds could be a better option if you are a higher or top-rate taxpayer who has used up their annual £20,000 ISA allocation and Personal Savings Allowance and can afford to take a bigger Premium Bond positions to increase their statistical chance for a win](https://www.financedigest.com/premium-bicycles-win-new-fans-among-chinas-city-folk.html "Premium bicycles win new fans among China’s city folk"). However, your adviser may well have alternative savings options to discuss with you. Many existing holders may have shifted funds from traditional savings accounts into Premium [Bonds during the turmoil](https://www.financedigest.com/britains-bond-market-turmoil.html "Britain’s bond market turmoil") of 2007/2008 and left them there since. Next time you speak to your financial advisor, you could discuss alternatives uses for these funds. Disclaimer Provided for informational purposes only. Not designed as advice. Speak to your IFA or [tax advisor](https://www.financedigest.com/tom-griffiths-tax-advisor-on-the-4-most-common-us-expat-tax-questions-answered.html "Tom Griffiths on The 4 Most Common US Expat Tax Questions Answered") for advice tailored to your individual circumstances. SynerGIS is a trading name of Global Investment Strategy UK Ltd, which is Authorised and Regulated by the Financial conduct Authority (437558) and is a member of the [London Stock Exchange](https://www.financedigest.com/london-stock-exchange-pours-cold-water-on-merging-listing-segments.html "London Stock Exchange pours cold water on merging listing segments"). Registered office: Brook Point, 1412 High Road London, N20 9BH, company’s registered number 04576299. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---