Premium Bonds come with key ‘advantage’ to boost your savings

Martin Lewis discusses Premium Bonds

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People who buy the Government-backed Bonds do not earn interest on their money but instead are entered into the prize draw, with other top prizes of £100,000, £50,000 and £25,000. But with odds of winning of 24,000 to one, some may be wondering if a conventional bank or building society is a better option.

Express.co.uk spoke to some personal finance experts to get their perspectives on whether or not Premium Bonds are a good investment.

James Andrews, Personal Finance Editor from money.co.uk, said there can be some confusion about how the savings product works.

He said: “Unlike a traditional savings account, you don’t earn any interest. Instead, every £1 you put in buys one entry into a monthly prize draw.

“The minimum amount you can put into Premium Bonds is £25, while the maximum is £50,000.

“There are a number of advantages of using Premium Bond accounts. Firstly, Premium Bonds are run by National Savings & Investments, which is Government-backed, and there is no risk to your capital.

“This means your money is very secure. Whilst it takes about a week to access your money, you are able to access it.”

Mr Andrews said the “main advantage” of the scheme is the prospect of winning a prize each month, which may make the Bonds an ideal investment for a child.

He explained: “This can be relatively small – around £25 – or it can be significant – up to £1million.

“With prize draws every month, Premium Bonds are the gift that keeps on giving for children, kickstarting their savings, as well as giving them the opportunity to earn cash prizes every month as they grow.”

The finance expert warned there is the risk a saver will not win any money. He explained how the odds of winning work: “The odds of winning are 24,000-to-one each month, so for every £24,000 you have invested the odds are one will win a prize each month.

“This means that over the course of a single year around 70 percent of people who have just £1,000 in savings will win nothing.

“Because you do not earn interest or dividends, Premium Bonds do not offer protection against inflation.

“With the current rate of inflation being so high, Premium Bonds are unlikely to beat it, unless you have a significant amount saved in your account, as the more money you have saved, the more likely you are to win prizes.

“Therefore, if you only want to gift a small amount to a child, it may be worth investing this into a fixed-rate savings account, which typically has the highest interest rates and guarantees that money will be earned on savings.”

Anyone can buy Premium Bonds for a child under the age of 16, although if they are not the child’s parent or guardian, they will have to inform them before purchasing the Bonds.

The parent or guardian will be responsible for looking after the Bonds until the child turns 16 and then the funds are transferred to them.

Matt Lewis, chartered financial planner at EQ Investors, said Premium Bonds are one way to invest funds to be used as a rainy day pot, for emergencies or occasional needs.

He said: “Premium Bonds are one option to consider for your rainy-day savings pot – a cash buffer for unexpected emergencies.

“We think around three to six months’ worth of essential expenses held as cash to cover emergencies is about right.”

He agreed a major benefit of the scheme is the money is protected by the Government so large sums can be invested and will be safe.

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