Time for a Premium Bonds Review as Budget Approaches
Savers holding Premium Bonds are being strongly advised to conduct an urgent review of their investments as Chancellor Rachel Reeves prepares to deliver her Autumn Budget statement on Wednesday, November 26. With speculation mounting about potential changes to savings policies, including ISA allowances, financial experts warn that Premium Bonds may no longer be delivering optimal returns for many investors.
Diminishing Returns and Long Odds
The appeal of a life-changing win is facing harsh financial reality checks. The Premium Bonds prize fund rate currently stands at just 3.6%, following three separate reductions implemented by NS&I throughout the past year. Kevin Mountford, co-founder of savings platform Raisin UK, highlighted the concerning mathematics behind the bonds. "While the idea of a big win is appealing, the odds of any single £1 Bond winning in a given month are 21,000 to one, meaning most savers earn nothing at all," he stated.
Mountford delivered a stark message for long-term holders: "If you’ve held Bonds for more than a year without a win, it might be worth reviewing whether that money could work harder elsewhere." This sentiment was echoed by Christian Harris, chief analyst at Investing.co.uk, who suggested that savers who have seen no returns after six consecutive draws should seriously consider changing strategy.
Superior Alternatives in the Savings Market
The current landscape offers significantly better returns for those willing to move their money. Easy access accounts are currently paying around 4.5%, providing a guaranteed return that dramatically outperforms the speculative nature of Premium Bonds for the majority of savers.
Kevin Mountford emphasised this point: "Premium Bonds are fun, but they’re not a plan, and in today’s market, guaranteed interest can deliver far more." Christian Harris pointed to specific alternatives, such as the Leeds Building Society Home Deposit Saver, which currently offers 4.8% interest. Although limited to monthly deposits of £500 and a maximum balance of £30,000, this account would generate approximately £132 in interest over a year if maximised.
Harris also recommended considering short-dated bonds or money-market funds for those seeking steady, low-risk growth. However, he added a crucial warning against shifting savings into the stock market currently, describing certain sectors, particularly AI, as being in "bubble-like territory" and representing particularly high risk.
Do Premium Bonds Still Have a Place?
Despite the compelling case for moving money, experts acknowledge that Premium Bonds retain certain advantages. They continue to offer 100% capital security and the unique psychological appeal of a potential large prize win. Mountford suggested a balanced approach for many savers: "Keep a small amount in Premium Bonds for fun, and move the rest into a fixed or easy access savings account with a competitive rate."
Regarding potential changes in the upcoming Budget, Harris stated he doesn't anticipate significant announcements directly affecting Premium Bonds. Nevertheless, with savings rates elsewhere in the market offering substantially better guaranteed returns, the advice to Premium Bonds holders is clear: now is the time for a thorough financial health check.
