Martin Lewis says ‘a lot have to win nothing’ in Premium Bonds verdict

Martin Lewis on why Premium Bonds could be worth considering

With NS&I’s Premium Bonds product advertising potential returns of up to an astonishing £1million, many often question if this is more beneficial than a typical savings account.

Premium Bonds offer savers the chance to win extra cash, tax-free, at the start of every month through randomly generated prize draws. But if a person’s number isn’t drawn, they won’t earn any interest or money on their investments that month.

Addressing a viewer on ITV’s This Morning show who questioned whether Premium Bonds are “worth it”, Money Saving Expert Martin Lewis said: “For some people. It’s quite complicated.

“The Premium Bonds prize rate is 4.65 percent, which is less than the top savings accounts. But actually, if you have typical luck, which is based on the median average, you will earn less than 4.65 percent.”

He explained: “Think about it this way, for every person that wins £1million, a lot of people have to win nothing, which is why on average, with typical luck, you get less than 4.65 percent.”

“The maximum [investment] is £50,000. So as a general rule of thumb, if you are a higher or top rate taxpayer, you have enough savings that you pay interest on it, and you’re looking at putting a large amount in, they can be a pretty good bet.

“If you’re looking at putting a few hundred quid in and you don’t pay tax on your savings, you would be a lot better off with a normal savings account where you’re guaranteed to get the interest.”

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Establishing the differences between Premium Bonds and a typical savings account, Mr Lewis delved into the tax-free benefits.

He said: “First of all, if you’ve got to pay tax on savings interest because you earn, as a basic rate taxpayer, more than £1,000 interest a year – which you’re allowed to do tax free – or as a higher rate taxpayer, more than £500 interest a year, then [Premium Bonds] become better.”

“With Premium Bonds, you’re more likely to win near the prize fund rate the more you’ve got.

“The maximum [investment] is £50,000. So as a general rule of thumb, if you are a higher or top rate taxpayer, you have enough savings that you pay interest on it, and you’re looking at putting a large amount in, they can be a pretty good bet.

“If you’re looking at putting a few hundred quid in and you don’t pay tax on your savings, you would be a lot better off with a normal savings account where you’re guaranteed to get the interest.”

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Mr Lewis stressed people’s savings are safe with NS&I and people can withdraw their funds as they are, whenever they’d like to. He said: “It’s a savings account where the interest is dictated by a lottery.”

But when comparing it to other savings accounts on the market, such as Metro Bank, which is currently offering the highest easy access rate at a guaranteed 5.22 percent, people are not guaranteed interest from Premium Bonds.

Mr Lewis said: “Yes, you can take your money out – but you can take your money out of any easy access account.”

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Mr Lewis explained the “big thing” with Premium Bonds, which is a state-owned product with NS&I, used to be that money is 100 percent safe.

However, he noted: “But in all UK regulated savings accounts, you’re now protected up to £85,000 by the state’s Financial Services Compensation Scheme. And you can only put £50,000 in Premium Bonds anyway.

“There isn’t a safety dividend, so you’ll have to work out whether it’ll pay more. If you look at it on a typical luck assessment, the big benefit really is that you don’t pay tax. But a lot of people don’t pay tax on savings anyway. So it’s those who do pay tax on savings, who have higher amounts that gets you near the averages that it’ll work for.”

This Morning airs weekdays from 10am on ITV.

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