Martin Lewis has clarified his stance on Premium Bonds following recent changes by NS&I, offering guidance on which savers may benefit from the scheme. Unlike traditional savings accounts where interest accrues, Premium Bonds operate via a monthly prize draw, with each £1 bond having equal odds of winning prizes ranging from £25 to £1 million. However, the majority of prizes are modest, and periods without any winnings can be lengthy.
Advice for Couple with £400,000 Windfall
On his BBC podcast, Lewis responded to a married couple expecting £400,000 from selling their London flat. They planned to buy another property within a year but had already maxed out their £20,000 ISA allowances. They considered investing £50,000 each into Premium Bonds, the maximum allowed.
Lewis stated: "Generally I pooh-pooh Premium Bonds because the rate isn't that high and for most people, unless you're maxing it out and you pay tax on your savings, with typical luck, you would beat it in normal savings." However, he acknowledged that for this couple, Premium Bonds were a good deal due to their tax situation and maximum holdings.
Recent NS&I Changes
NS&I recently reduced the Premium Bonds prize fund rate from 3.6% to 3.3% from April's draw, and the odds of winning worsened from 22,000 to one to 23,000 to one. Meanwhile, many easy access savings accounts offer rates of 4.5% or higher. According to Money Saving Expert, with average luck, holding £1,000 in bonds yields nothing; £10,000 yields £275 annually; and the maximum £50,000 yields £1,450. In contrast, a 4.5% account would generate £2,250 on £50,000.
Alternative NS&I Fixed Rate Bonds
Lewis highlighted new NS&I fixed rate bonds offering competitive rates. Unlike Premium Bonds, these guarantee interest and are backed by the Treasury, providing full protection on deposits up to £1 million, exceeding the standard FSCS protection of £120,000 (or temporary high balance protection up to £1.4 million).
Lewis noted: "Normally, the rates in NS&I fixed rate savings are way below the best buys. The rates of these are only about 0.2 percent below the best buys." The new rates include:
- 1-year Guaranteed Growth Bond: 4.5% (up from 4.07%)
- 1-year Guaranteed Income Bond: 4.5% (up from 4.07%)
- 2-year Guaranteed Growth Bond: 4.48% (up from 3.98%)
- 2-year Guaranteed Income Bond: 4.48% (up from 3.98%)
- 3-year Guaranteed Growth Bond: 4.45% (up from 4.02%)
- 3-year Guaranteed Income Bond: 4.45% (up from 4.02%)
- 5-year Guaranteed Growth Bond: 4.4% (up from 4.05%)
- 5-year Guaranteed Income Bond: 4.4% (up from 4.02%)
