Who ought to lower your expenses in Premium Bonds – and who ought to undoubtedly keep away from them

[ad_1] In 2025 £5.8 billion was poured into Premium Bonds. However are they actually the correct house to your money?

“Premium Bonds stay a star within the financial savings enviornment,” says Sarah Coles, head of non-public finance at Hargreaves Lansdown. “Individuals are extremely connected to their Premium Bonds, however as we transfer into 2026, it’s effectively value taking inventory of whether or not they’re best for you.”

There are three key points of interest.

The primary is safety – NS&I, which operates Premium Bonds, is backed by the Treasury so your cash is 100 per cent secure. Then there’s the very fact any prizes you win are tax-free, and eventually the chance that you possibly can win the £1m jackpot.

So, who ought to persist with Premium Bonds and who ought to abandon them?

The enchantment and disadvantages of Premium Bonds

The massive lure is similar as the issue: the prizes on supply.

“When folks win a prize on their Premium Bonds they get extra than simply the cash, additionally they really feel a way of getting one thing for nothing, which is a robust incentive to remain put,” says Coles.

“Nevertheless, you’re really paying for the prizes your self, as a result of your money doesn’t earn any curiosity. Given the truth that the common bond holder will win nothing within the common month, it means your financial savings are prone to lose cash after inflation.”

In spite of everything, no curiosity is paid on Premium Bonds balances, so that you solely make a return should you win. Information from AJ Bell exhibits that nearly two-thirds (63 per cent) of Premium Bonds holders have by no means gained a prize.

open picture in gallery

(Getty Photographs) Small financial savings? Ditch Premium Bonds

“These with small quantities in Premium Bonds are much less prone to win,” says Laura Suter, director of non-public finance at AJ Bell.

The agency discovered that the common holding for Premium Bond winners was £23,397, whereas the common holding for individuals who didn’t win was simply £106.79.

“Put merely, should you’re one of many hundreds of thousands of individuals with a small sum of money in Premium Bonds, the chances are stacked towards you,” says Suter.

Get a free fractional share value as much as £100.Capital in danger.

Phrases and situations apply.

Go to web site ADVERTISEMENT

Get a free fractional share value as much as £100.Capital in danger.

Phrases and situations apply.

Go to web site ADVERTISEMENT

In case you haven’t already used your £20,000 ISA allowance, then shifting your cash from Premium Bonds right into a money ISA will imply you earn a dependable tax-free return.

Modest balances have combined outcomes

The common new Premium Bonds buyer holds £10,674 in line with knowledge from Hargreaves Lansdown. At this degree, some folks will win, however many gained’t. In opposition to the context of common holding amongst winners being in extra of £23,000, it exhibits how a lot stability measurement impacts the chances.

Even with common luck, Premium Bonds aren't aggressive. The prize fund charge is presently 3.6 per cent whereas prime easy-access financial savings accounts pay round 4.5 per cent. On a £10,674 stability, that may return £480.33 over 12 months with no luck concerned.

That's under the private financial savings allowance for might savers, which means no tax to pay.

On modest balances, a sure return may beat hopes of a giant win.

Giant money financial savings? Premium Bonds may assist

You probably have a considerable amount of money that you just want easy accessibility to, and also you’ve used up your ISA allowance than Premium Bonds might be helpful. You may deposit as much as £50,000 realizing your cash is secure and any prizes you do win are tax-free. This may be helpful if you're prone to breach your Private Financial savings Allowance too.

open picture in gallery

(Getty Photographs) “As rates of interest have risen extra individuals are hitting this allowance,” says Suter.

In case you are incomes 4.5 per cent in a financial savings account a fundamental charge taxpayer would breach their allowance with a financial savings stability of £22,000, whereas a higher-rate taxpayer would pay tax if their stability exceeded £11,000. Further charge taxpayers get no Private Financial savings Allowance in any respect.

“For these highest earners, or those that have already breached their allowance, the tax-free nature of Premium Bonds turns into way more engaging,” Suter provides.

Premium Bonds aren't greatest for kids

Premium Bonds are standard with dad and mom and grandparents, with greater than 77,000 accounts opened for under-16s final yr. However they don't seem to be the only option for kids’s long-term financial savings. With no assured return, inflation can steadily erode the true worth of cash held.

“Households shopping for for kids may see the true worth of the bonds shrink significantly over time,” says Coles.

A Junior ISA, for instance, presents tax-free progress with a far better probability of beating inflation.

The numbers merely present that, for many people, there are higher properties for our cash than Premium Bonds.

“As we head into the brand new yr, it’s value contemplating whether or not you might be nonetheless proud of them” says Coles, “or whether or not you’d choose the knowledge of a robust charge within the wider financial savings market.”