🔔 Should I stay or should I go? Is it time to ditch Premium Bonds?

NS&I Premium Bond prize fund rate to rise to 2.20%

A chat with my partner who has been a long-standing fan of Premium Bonds, in addition to the news that NS&I is to raise the rate on the Premium Bond prize fund from the October 2022 prize draw, prompted me to write this article.

Tim has been one of the lucky ones when it comes to his Premium Bonds. He won £5,000 just one month after depositing the maximum amount, seven years ago, and he also won £575 in one month a couple of years ago. 

That said, since then he’s had more average luck and more recently it’s been downright disappointing. So, with interest rates rising significantly elsewhere, he has made the decision to jump ship – choosing instead to tie up the money into a 2-year fixed rate bond paying 4.50% AER.

Even the news that the prize fund rate will be increasing to 2.20% from its current level of just 1.40% will not stop him. But what will others do?

100,000 extra prizes up for grabs

The good news is that this new prize fund rate will see the value of the prizes in the October draw swell by £76 million to around £218 million - and the number of £5,000, £10,000, £25,000, £50,000 and £100,000 prizes up for grabs will almost double.

The new rate of 2.20% is actually very competitive, as Premium Bonds are still effectively easy access, so this rate is higher than the current best buy easy access account on the market - the Al Rayan Everyday Saver (Issue 3) which is paying 2.10% AER.

However, a key thing to be aware of with Premium Bonds is that there is no guarantee that you will win anything. But with two £1 million prizes up for grabs each month, plus nearly five million other prizes of between £25 and £100,000, you could be one of the lucky ones. And any prizes won are tax free.

But if you have only a small amount invested, there is a greater chance that you’ll win nothing. I have a modest amount of £2,600 in Premium Bonds and so far this year I have had no luck at all – and I won just £50 in each of the two preceding years. While that doesn’t sound like much, it was in fact a tax-free return of just under 2% a year, at a time when the Bank of England base rate had fallen to its lowest ever level. So I actually earned more than I did on my other savings in those years. That’s the point – it’s a bit hit and miss.

So while for some, like Tim, the fact that you can now earn some more significant and dependable interest elsewhere will persuade them to go for now, personally I’m hoping that this boost to the number of prizes available will improve my luck. And I expect that there will be many like me who enjoy the thrill of wondering each month if just maybe it’s my turn to win the jackpot.