MoneySavingExpert founder Martin Lewis says premium bonds aren’t the best choice for everyone and that some people may want to avoid them – despite 20 million people already having them
Martin Lewis says some Brits may want to re-evaluate whether premium bonds are the best option for them.
In a new podcast, the MoneySavingExpert founder, 52, explained why premium bonds are so popular – with Brits holding more than £100 billion premium bonds. He explained that one of the reasons they’re so popular is because the money invested into them is safe, making them an option that’s relatively low-risk.
Martin also added that the ‘lottery-style’ way in which premium bonds work – where bonds are entered into a monthly draw – is often seen as attractive to people wanting to grow their savings. In addition, he explained that the fact any winnings come ‘tax-free’ is another reason this form of investment is so popular with Brits.
But despite how popular the government-run savings accounts are, the money expert explained that they may not be the best option for everyone. He explained that for anyone who is only able to invest a small amount of money, the chances of winning a prize is lower.
He said: “For those people only putting a small amount in and who don’t pay tax on savings – which is a lot of people – premium bonds are a bad bet. I mean, there will always be someone who beats the odds and has more than typical luck but they’re a bad bet.” He went on to explain that should you put £1000 into premium bonds, there’s a 56.5 percent chance that you will win nothing, a 43 percent chance of winning up to £25, and a 35 percent chance of winning up to £50. This means that it’s most likely that you won’t win anything.
Martin explained that the chance of winning a prize increases as you invest more money. He added: “The more you put in, the closer you will get to the prize fund rate. Once you start moving up to between £2,000 and £3,000 and your return is around 3.5 percent, if you would otherwise be paying tax on your savings, then they start to become a decent bet with typical luck.”
“So you will want to fill up your cash ISA already, at that point they become a decent bet, especially if you can max them up and you’re lucky enough to put £30,000 to £50,000 in, especially if you would be paying tax on your savings otherwise. But adds that, unless you’re going to be adding higher amounts to your premium bonds, then you’ve probably got more of a chance of tossing a coin and it landing on its side.
Rounding off his argument, he added: “I accept the idea of psychology that people like dreaming big and winning £1 million. He said: “Premium bonds can work for people who have a lot of savings and are paying tax on them, they’re not so good for smaller savers.” The Manchester Evening News revealed that the number of prizes will decrease in December, with prizes worth £435,686,300 down from £461,330,525.
