Martin Lewis has explained how Premium Bonds work and set out who they are suitable for and who are the "worst candidates" for the savings scheme.
The UK's most popular form of savings holds over £136 billion, but Mr Lewis says "we tend to give them to the people they’re least suited for." In the latest episode of The Martin Lewis Podcast, the finance expert notes the current Premium Bond prize fund rate is 4.35%.
"That sounds good, but actually, most people with typical luck will win less than that, and you can earn more just in a standard, top, bog-standard easy-access savings account."
Who should hold Premium Bonds
Mr Lewis explains that Premium Bonds are good for people who have almost the maximum amount allowed, £50,000, "and those who are already going to pay tax on other savings".
He added: "They’ve used up their Cash ISAs, they’ve used up their savings allowances, where the tax-free nature of the bonds comes into play."
Who should avoid them
"Who are they not good for, particularly? Well, people you’re giving small amounts to who don’t pay tax, like children. But we often give Premium Bonds to children. Now, I know some people think, yeah, but they’re safe because it’s NS&I, you know, it’s government-backed.
"But the maximum you can put in Premium Bonds is £50,000, and these days, all UK-regulated savings are protected up to £120,000 per person per financial institution."
Prizes range from £25 up to a million pounds. Mr Lewis continued: "Now, a million pounds sounds great, but let’s just put this in context.
"There are two £1 million prizes won each month, and there are 136,000 million bonds entered in that draw, which means each individual £1 bond has a one in 70 billion chance of winning a million."
Best recipients
He went on to explain that Premium Bonds are good for those who want to keep money in savings and be able to access it, "if you’re putting a large amount in and you’re paying tax on other savings interest and you’ve used up your Cash ISAs". He then repeated that Premium Bonds "are worse for people who are putting relatively small amounts of money in and don’t pay tax - pretty much all children".
Mr Lewis added: "Actually, if you’re going to give it to someone, if your son and daughter is a high earner who’s used up all their tax allowance and is saving their money for a property in a year or two, they’re probably the best ones to give Premium Bonds, as long as you’re giving a lot of them."
