On The Martin Lewis Money Show tonight, the money saving expert explained whether he thought Premium Bonds were worth saving into. He compared the rates people get with bonds, compared to the top easy access accounts right now.
Premium Bonds are an investment product issued by National Savings and Investment (NS&I).
Unlike other investments, where people earn interest or a regular dividend income, holders are entered into a monthly prize draw where they can win between £25 and £1million tax free.
The prize fund rate is 2.02 percent so for every £100 people pay in, they would get £2.20 if it was a normal account.
However as interest is paid with a prize draw, holders can’t get £2.20. They can either get nothing or £25 and more.
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Using a probability calculator, Mr Lewis explained what people will actually get in the Premium Bonds prize draw with “typical luck”.
It showed that on up to £1,000, with typical luck people would get nothing. So for smaller amounts invested, people won’t win much.
Typical luck refers to the median average of those who have won, whereas the prize fund is the mean average.
Mr Lewis said: “With typical luck, you will get nothing.
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“At £50,000, you would win a grand which is two percent and the top easy access account for all is 2.55 percent.
“So with typical luck, Premium Bonds win less than the easy access and they win a lot less than fixed accounts.
“Most people with money in Premium Bonds don’t do it for the short term, they do it for the long term.”
Premium Bonds are tax free so if people have exhausted all their other tax free accounts, they are a “good bet”, he explained.
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However for most people on typical luck, he said that they will win less than in the top paying easy access savings.
Mr Lewis added: “In honest terms of returns for most people with typical luck, you will do better in a top savings account.
“So I would go for the top account.”
Premium bonds might not be the best option for someone who wants a regular income or wants guaranteed returns.
People can cash in their Premium Bonds at any time without penalty.
According to NS&I, it takes up to three banking days for the money to reach your account, unless you have elected to cash in after the next draw.
Money invested is secure, since Premium Bonds are fully backed by the Government.
They are the most popular savings account in the UK.
The Martin Lewis Money Show is available on ITV player.
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