Premium Bonds expert issues warning over likelihood of ever winning

Premium Bonds customers have been urged to rethink their savings strategy, as most Bond holders never take home a prize. Savers already have cause for concern about whether or not the prize-based Bonds scheme is really worth it, with the prize fund rate set to drop from the December draw, decreasing from 4.4 percent to 4.15 percent.

Laura Suter, director of personal finance at AJ Bell, has pointed to figures sourced from NS&I that reveal two-thirds of customers will never have their lucky moment and take home a prize. She urged Bond holders to explore other options and put to the test if the scheme truly suits them, stating: "Savers with money in Premium Bonds should really think about whether the account is right for them.

"Considering many Premium Bond holders will never win a prize and the average expected return is lower than the top easy-access account, savers could well be better off with a guaranteed return elsewhere." With the fall in the prize fund rate, the odds of each £1 Bond being chosen to win a prize will fall from 21,000 to one to 22,000 to one, with the December draw offering some 260,000 fewer prizes compared to October.

Lucky customers could take home a big cash prize such as £100,000 and £50,000 and even the £1 million jackpot. You could even win several prizes in a single draw. In contrast, you could also go months or even years without winning anything.

Loyal savers sometimes reach out to NS&I to vent their frustration at their lack of wins, with some waiting decades without bagging a prize. Despite these clear disincentives, Ms Suter thinks that Premium Bonds will keep their appeal.

She said: "These accounts are still likely to continue to be very popular as they are backed by NS&I and many savers have huge brand loyalty to the organisation. There are a few groups where Premium Bonds are a very attractive option, but for most the safety of a regular interest rate will be better and savers may want to shop around for the best rates on offer."

Money Saving Expert, set up by Martin Lewis, has crunched the numbers and found that with average luck at the current 4.4 percent prize rate, holders of £100 or £1,000 in Bonds are unlikely to win anything. Even if you have £10,000 invested, your median annual winnings would only be £375. For the maximum investment of £50,000, the expected return is approximately £1,950, which is an effective prize rate of 3.9 percent.

Ms Suter advises Bond holders to look into other savings avenues, noting: "The rates are now significantly below the top rates in the market, meaning savers are paying a decent premium for the safety and brand name of NS&I. Anyone with money in easy-access NS&I accounts should weigh up whether they would be better switching to a rival to clinch some extra interest."

The NS&I website warns potential savers that the scheme might not be right for those who "want a regular income" or "are looking for guaranteed returns", highlighting the variable nature of prize winnings. Investors should note that the value of savings held in Premium Bonds will decrease in real terms over time due to inflation, despite the amount of holdings remaining constant if no prizes are won. This shrinkage is due to the reduced purchasing power of money.

What doe NS&I say about how the Premium Bonds prize rate works?

The NS&I website says: "Premium Bonds don’t earn interest. Instead, there’s an annual prize fund rate that funds a monthly prize draw for tax-free prizes. Remember that inflation can reduce the true value of your money over time. The prize fund rate is variable so it can change at any time. For example, before new Bonds become eligible for their first draw."