Financial journalist Martin Lewis has clarified how Premium Bonds work, warning they are not suitable for everyone. Speaking on his BBC podcast, he dedicated a large portion of the show to explaining the rules and who they suit best.
Lewis cautioned that people often "see it as a safe form of savings, and they don't realise there's a chance of it being eroded by inflation even more than top savings [accounts]. There's certainly the chance of it not doing as well as top savings, and there's very much a chance of it not doing as well as investing".
Warning over gifting Bonds to children
He specifically warned against buying Premium Bonds as a gift for loved ones, noting that small holdings are unlikely to win anything. Historically, people have bought them as a gesture, but Lewis advised against it.
Mr Lewis said: "Don't give your kids £100 worth of Premium Bonds. You're just going to do what hundreds of thousands or millions of people out there who have been given that, and they've never gained a penny from it, and their money has just been eroded by inflation."
Recent rule changes
The rules for Premium Bonds recently changed. From the August draw, the odds of any £1 Bond winning a prize improved from 22,000 to one to 21,000 to one. NS&I also raised the prize fund rate from 3.8 per cent to 4.35 per cent.
Who should consider Premium Bonds?
Lewis said Premium Bonds may suit savers who pay tax on their savings, as prizes are tax-free, and those who cannot find a more tax-efficient way to invest their cash. He also suggested they suit people putting in a "decent whack" of at least £5,000.
Mr Lewis said: "That's when they become actually a good idea and you might want to look at it, once you've used up everything else. But as a basic thing for kids, I think there's better."
