Earlier in the year, the Bank of England reported that it expected the UK Savings Ratio – the amount of disposable income that people save - to peak to as high as 17% by the end of the year. But new statistics out from the Bank of England last week have shown that Britains have smashed this prediction. Between April and June this year, households saved almost £3 from every £10 – a new record high of 29.1% - more than double the previous record of 14.4% set in 1993.
The problem is that as we have become a nation of savers, interest rates have continued to fall.
As a result, a number of banks are providing a relatively new type of savings account – those that include a prize draw. But just how do they work?
We take a look at the most recent prize draw funds that have appeared on the market.
Nationwide introduced a couple of these accounts earlier in the year and its most recent is an 18 month bond called the Mutual Reward Bond.
Nationwide Mutual Reward Bond – available for members who joined the Society before 29 September 2020.
This 18 month bond offers existing members of Nationwide Building Society a fixed rate of 0.50% AER on balances of up to £10,000 - plus a chance to win £10,000. Account holders will receive one entry into the prize draw, which will take place on 2 February 2021, for every £100 saved.
The best 18 month bond on the market is currently with Sharia provider BLME and is paying 1.25% AER. On a deposit of £10,000, the difference between 1.25% and 0.50% (the interest rate paid on the Nationwide Mutual Reward Bond) is £75 per annum - £112.50 over 18 months. So, for a potential loss of £112.50 gross, you might just win £10,000.
Nationwide states that if you save the maximum £10,000, you have a 1 in 200 chance of winning £10,000. If you deposit £500, you have a 1 in 4,000 chance of winning.
Family Building Society Windfall Bond
This is a 35 day notice account which is paying a variable rate of interest equivalent to the Bank of England base rate – and also gives you a monthly chance to win a prize of up to £50,000.
Each bond requires a deposit of exactly £10,000 – but you can open as many bonds as you like. You will be entered into the prize draw in the second month after opening the account – so if you open a bond in October, you will be entered into the December prize draw. Each qualifying bond is allocated one of 15,000 unique tickets in a monthly prize draw, which will give you the chance of winning up to 21 prizes per month.
The best 30 Day Notice Account on the market is Secure Trust Bank paying 1% AER. On a deposit of £10,000, which in the minimum for each qualifying bond, the difference in interest between 1% and 0.10% is £90 gross per annum. So, for a potential loss of £90 gross in interest, you will have access to a monthly draw, which could see you winning one or more of the following prizes;
- 15 prizes of £1,000
- Three prizes of £2,500
- Two prizes of £10,000
- One prize of £50,000
According to The Family Building Society, each £10,000 bond gives you approximately 1 in 714 chance of winning each month.
Halifax Prize Draw
If you hold at least £5,000 in a qualifying Halifax account you’ll be entered into a monthly prize draw which could see you winning one of the following prizes;
- 3 savers will win £100,000
- 100 savers will win £1,000
- 1500 savers will win £100
Unlike The Family Building Society Windfall Bond, you are only entered once each month into the draw regardless of how much over the minimum £5,000 qualifying amount you hold.
Here are a couple of qualifying Halifax accounts, compared to the best on the market.
The best easy access account on the market is currently Coventry Building Society's Double Access Saver (Online)(4), paying 0.96% AER – compared to the Halifax Everyday Saver paying 0.01% AER.
On a deposit of £5,000, which is the minimum to qualify for the monthly prize draw, the difference in interest between 0.96% and 0.01% (both are variable) is £47.50 gross per annum. So, for a potential loss of £47.50 gross in interest, you will have access to a monthly draw which could see you winning one of the prizes above;
2 Year Fixed Saver
The best 2 Year Fixed Rate account on the market is Charter Savings Bank (via the Raisin Platform) which is paying 1.31% AER – compared to the Halifax Fixed Saver paying 0.20% AER.
On a deposit of £5,000 the difference in interest between 1.31% and 0.20% is £55.50 gross per annum.
NS&I Premium Bonds is probably the best known prize draw account and is hugely popular, even though you are not guaranteed to win anything – and you don’t earn any interest.
As mentioned above, the best easy access account on the market is the Coventry Building Society Double Access Saver (Online)(4), paying 0.96% AER.
On a deposit of £5,000, if you win nothing, you could miss out on £48. But you might just win £1m – although the odds are approximately 1 in 47bn!!! According to journalist and broadcaster, Paul Lewis, even with the maximum £50,000 in Premium Bonds “you would have only an even chance of winning a million after 82,000 years”.
It’s more likely that you would win one of the smaller prizes. There were 94,072,406,201 bond numbers eligible for one of the following 39.2 million prizes in the October draw. (The number of prizes made in the October draw are in brackets next to each amount).
- £25 (3,850,597)
- £50 (30,747)
- £100 (30,747)
- £500 (6,723)
- £1,000 (2,241)
- £5,000 (144)
- £10,000 (71)
- £25,000 (29)
- £50,000 (15)
- £100,000 (7)
- £1,000,000 (2)
As savers continue to suffer cripplingly low interest rates, these prize draw funds may offer a beacon of hope – however it’s important to understand that you may well win nothing and therefore earn even less on your hard-earned cash.