Martin Lewis has warned that Premium Bonds are often given to the people they are least suited for, particularly children, and has pointed to alternative savings options.
Premium Bonds are a savings account offered by National Savings & Investments (NS&I), a treasury-backed savings institution. Instead of interest, holders have the chance to win a range of tax-free prizes from £25 up to £1 million. Each bond is entered into a monthly, randomly generated prize draw, with NS&I's Electronic Random Number Indicator Equipment (ERNIE) generating the winning numbers.
The odds and rates explained
According to NS&I, there are odds of 21,000 to 1 for every £1 Bond in the monthly prize draw, variable. Premium Bonds have an annual prize fund rate of 4.35%, variable, representing the mean average return across all bond holders.
In a clip on X promoting a longer discussion on The Martin Lewis Podcast, the MoneySavingExpert.com founder said: "They're the UK's single most popular form of savings, with over £136billion in them. Yet the irony of these bonds for me is we tend to give them to the people they're least suited for."
Who should consider them
Mr Lewis argues that while the current prize fund rate of 4.35% "sounds good", "actually, most people with typical luck will win less than that". He added: "And you can earn more just in a standard top bog standard easy access savings."
He said: "Who are premium bonds good for? Well, mainly people are going to have nearly maximum, so the closer to winning that prize fund rate. And those who are already going to pay tax on other savings, 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."
Why children miss out
However, the personal finance expert said they are not particularly good for people "you're giving small amounts to, who don't pay tax, like children", despite the fact that children are often given them.
He continued: "Now I know somepeople think, 'yeah, but they're safe because it's NSNI (National Savings as was), 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."
