Are Premium Bonds worth it?
With over 26 million people in the UK investing in premium bonds and the chance of winning £1 million every month, as well as over a million other cash prizes, it is understandable why people feel attracted to this tax-free investment opportunity; however, are premium bonds really worth it? Many accountants and financial advisers will tell you that they are not, and that you will be better off if you choose to invest in a tax-free ISA account; the only problem is that a savings account will not give you the opportunity to win £1m, £100k or even £50k.
I have been investing in premium bonds for the last four years and I would recommend it to anyone who is NOT so worried about interest rates (inflation can reduce the true value of your money over time); and those who consider themselves a little bit LUCKY; at the end of the day it is just another lottery scheme, however you will not lose the stake and have the security that is it backed by HM Treasury so you can be confident that the money is 100% secure.
The current odds of winning the top prize were never good and after the credit crunch became even worse as the impact of falling interest rates has affected the premium bonds prizes (instead of paying interest, the interest rate funds the prize draw every month).
The current odds of winning any prize per £1 unit is 24,000 to 1 (with the current fund interest rate of 1.50%); it means that if you have the maximum investment of £30,000 you will be expected to win an average of 15 prizes.
Now, as I am more than happy to win anything over £25,000, I have prepared a table based on winning any prize over the value of £25k to help you decide if they are good for you or not.
Total Holdings Odds of winnning any prize over £25,000 (1 year period)
£1,000 1 in 110,773
£5,000 1 in 22,153
£10,000 1 in 11,076
£15,000 1 in 7,383
£20,000 1 in 5,537
£30,000 1 in 3,691
Table will be updated once odds and interest rate change.
- Possibility of winning prizes (from £25 to £1m)
- Tax-free investment opportunity (convenient if you are a high-rate tax payer)
- You do not lose the stake (automatically eligible for the next draw)
- Guaranteed by the HM Treasury (your money is secure)
- Investment can be withdraw at any moment (partial withdrawals also allowed)
- Possibility of inflation eroding the value of your investment.
- No assurance about guaranteed returns and winnings (it especially applies for big prizes)
- Interest earned is variable.
- One of the best saving opportunities for anyone in the United Kingdom is to invest in the Individual Saving Accounts (Cash ISAs) – they allow you to keep your saving without paying any tax on the interest earned with the possibility to withdraw your money at any time.
- If you are interested in investing in Arts, you may find my article: Buying Art as an Investment very useful.
In my own experience I have received over 250% of my original investment and although I do consider myself a very lucky person, I am still waiting for the £1m prize; I promise that you will find out if I win with an article update!
This article is not intended in any way to be a financial advice; it is only for information purposes only; however I am very interested to find out what you think about premium bonds and if you have any experience bad or good that you would like to share.