National Savings and Investments (NS&I) has slashed the minimum investment required to buy premium bonds, from £100 to £25.
This is the first time the minimum investment has ever been cut, and it hasn’t been this cheap to invest in premium bonds since 1993.
While this reduction means that investing in premium bonds is now even easier and more attainable, what does it mean for your chances of winning a prize?
Which? looks into the probability of getting a win with £25, and whether making such a small investment is worth it.
What are the chances of winning a prize with £25?
Premium bonds are a type of cash investment offered by NS&I. Rather than earning interest, you’ll be entered into a prize draw each month, with prizes from £25 up to £1m.
As of last week, investors can buy premium bonds for any value between £25 and £50,000, as long as the amount is in whole pounds.
The graph below shows the probability of winning a premium bonds prize over the course of a year, based on how much you invest.
The general trend is, the more you invest, the more likely you are to win.
If you put in £10,000, you’re pretty much guaranteed to win some kind of prize over the course of a year. But keep in mind this prize could be as little as £25, which is a fairly modest return on your savings.
In the same period, having £25 worth of premium bonds would give you a 1.2% chance of winning any prize – a 1 in 81 chance. This is the equivalent of winning 0.012 prizes over the course of a year, which may not sound hugely enticing.
Having said that, every single £1 bond has an equal chance of winning in every draw – 1 in 24,500, to be precise.
Despite the long odds, you could get lucky with even a modest investment.
In this month’s draw, a person from Hampshire and the Isle of Wight with a £5 holding from 1976, and another from Buckinghamshire with a £20 holding from 1971, both won £1,000.
Should I buy premium bonds?
Something you should consider before deciding whether or not to invest is the lack of interest rate. Premium bonds don’t pay any guaranteed interest on your savings.
Rather, NS&I quotes a ‘prize fund rate’, representing the return a person of average luck may expect, which is currently 1.4%. But there is no guarantee you’ll win any prizes at all – it’s possible to invest £25 and win a million the next month, or pay in £25,000 and win nothing for years.
Unless you win a prize, your money won’t earn any interest and will therefore lose value in real terms due to the effect of inflation.
If you were to hold your money in a savings account instead, you’d get guaranteed growth on your money, and the top-rate instant-access accounts currently pay more than 1.4%.
That said, a savings account doesn’t give you the possibility of winning big. And if you only have a small amount to invest, so that your interest may only equate to a few pounds, you may want to take a chance on a much bigger reward.
Find out more: premium bonds
Which savings accounts can beat the premium bond rate?
The table below shows the top rates for instant-access and fixed-term savings accounts. The links take you through to Which? Money Compare.
|ICICI Bank UK Hisave Bonus Saver account||1.55%||£1 minimum initial deposit. Rate drops to 1.25% AER after 12 months|
|Al Rayan Bank 12-month fixed-term deposit||2.17% EPR*||£1,000 minimum initial deposit|
|Al Rayan Bank 24-month fixed-term deposit||2.42% EPR*||£1,000 minimum initial deposit|
|Al Rayan Bank 36-month fixed-term deposit||2.52% EPR*||£1,000 minimum initial deposit|
|Vanquis Bank four-year fixed-rate bond||2.52% EPR||£1,000 minimum initial deposit|
|Bank of London & The Middle East five-year premier deposit account||2.70%||£10,000 minimum initial deposit|
*Expected Profit Rate. Source: Which? Money Compare. Correct xx Feb 2019.
As the table shows, all rates beat the average premiem bonds rate, and your money is guaranteed to grow.
However, the majority of the top-rate accounts require a minimum initial deposit of £1,000 – and, with fixed-term accounts, you’ll have to lock it up for a set amount of time. This may not be possible for those with smaller savings pots, for whom the new lower premium bonds price is now much more accessible.
Such savers could still benefit from the top instant-access account and earn 1.55% AER.
So, if you want guaranteed cash growth, you should opt for a savings account. But, if you want the monthly thrill of checking to see whether you’ve won a big cash prize, premium bonds are more fun and give the prospect of higher rewards.
You can search through hundreds of savings accounts on Which? Money Compare.
Find out more: how to find the best savings account
How can I buy NS&I premium bonds?
Anyone who is over the age of 16 can buy premium bonds, plus parents and grandparents can also buy them for children. The investment and any winnings will be signed over to the child once they turn 16.
Funds held with NS&I are backed by the Treasury, so your money is 100% safe – and it covers more than the £85,000, which is the savings limit covered by the FSCS.
Our video below explains how premium bonds work:
Please note that the information above is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of the savings account provider before committing to any financial products.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.