Swapping Premium Bonds for higher returns: I'm making the move, but my spouse is hesitant - who's correct in this financial dilemma?
In the early days of our love-filled partnership, my spouse and I used Premium Bonds as a common conversation starter about finances, over twenty years ago. He had a weakness for weekly lottery drawings, and I encouraged him to try Premium Bonds instead. It was a win-win situation for us: he could still aim for hefty tax-free monthly rewards, while always getting his initial investment back. High off the potential £1 million jackpot and small prizes, we purchased small £100 shares in Premium Bonds, just for fun.
Unlike many other Premium Bond holders, who keep their investments for decades, we had unluckily not won a dime for over ten years. Despite our modest stake, it became a funny private joke between us. Today, there are approximately 22.7 million Premium Bond holders, with a whopping £127.7 billion stored in them as of the end of 2024.
An investigation by AJ Bell's Dodl investing app, via a Freedom of Information request, revealed that an alarming 63% of Premium Bond holders—equivalent to around 14.4 million individuals—have never received any prize money.
Owning these products could have cost numerous individuals significant returns on their money in a higher-paying cash account or any returns that may have come from investing. In addition to missing out on potential income, investors have also fallen victim to inflation.
The typical overall Premium Bond holding is £5,406, but AJ Bell reported that the average holding of the nearly 5.1 million winners in the last 12 months stands at £23,397. An amazing 80% of these victorious investors have claimed their prizes more than once during that time frame.
Clearly, my personal history of handling larger Premium Bond sums has yielded decent results.
Last summer, I made the strategic decision to place our family's emergency savings fund within Premium Bonds. The overall prize fund rate had slightly improved, and I knew the holdings were safe due to NS&I's government backing. Plus, I still entertained dreams of hitting the jackpot after all those years of small investments.
Increasing our holdings to the maximum allowed £50,000, I hoped a bigger stake would improve the odds of winning. Since July 2022, my total Premium Bond prizes have amounted to £3,570 - a mix of £25, £50, and £100 payoffs on individual bonds.
My most successful month was January of this year, when I cashed in an astonishing £300 from five of my bonds. I enjoy updating my spouse, using the NS&I app's 'reveal results' function, about our latest winnings every month. However, there were six months where no prizes were awarded at all. My total earnings always seemed to hover around the prize fund rate, so it felt reasonable - I was average in my luck.
Now, my enthusiasm has waned, and I'm contemplating selling all my Premium Bonds. Stirred by NS&I's announcement of a prize rate reduction from 4% to 3.8% in April, albeit with unchanged odds, I have been searching for new alternatives.
One intriguing option I have come across is the easy-access cash account offered by Trading 212, providing an attractive 4.83% interest rate. This rate includes an initial bonus of 0.73% for the first 12 months. The daily interest payment makes it an appealing, small financial boost that won't rival the excitement of a Premium Bonds win but ensures motivation.
Another advantage is the flexibility of an easy-access cash account, as I now want more freedom to withdraw funds. Since our eldest child is now at university, I find it essential to maintain greater access to our funds.
Charlene Young, seniors savings expert at AJ Bell, asserts that "The market remains teeming with cash accounts (including tax-free Isas) offering rates higher than the Premium Bonds estimated prize fund rate of 3.8%."
My husband, Memet, still cherishes the pipe dream of a life-changing prize and intends to maintain his £100 stake in Premium Bonds. He explains, "I've kept my low investment all these years just in case a life-changing opportunity arises. I know the odds are against me, but £100 is only the cost of a meal out. When I heard that in March, someone with £100 had won the jackpot, I thought "That could have been me!" It's a far-fetched aspiration."
In 2024, a fortunate holder won £100,000 from a humble £100 initial investment within the first eligible month. Additionally, in March 2025, someone from Cleveland obtained the £1 million jackpot by investing £100 in May 2023.
However, Young also cautions that "Winning any of the top prizes (ranging from £5,000 to £1 million) remains an incredibly unlikely event.”
Other reasons to abandon Premium Bonds are numerous. While two £1 million jackpots have been awarded each month since 2014, £1 million has lost much of its purchasing power over time. To keep pace with inflation, Hargreaves Lansdown estimates it would need nearly tripling to £2,734,618. Moreover, the chances of winning the top prizes have been dwindling, with odds increasing from around one in 61 billion to close to one in 64 billion in 2024. These poor odds are reminiscent of the chance of being struck by lightning. Since 2022, multiple £50 and £100 prizes have been distributed, accounting for a larger proportion of overall winner prizes compared to the smallest £25 awards.
Therefore, my spouse can carry on his pipe dream of hitting the jackpot. But, I won't be joining him. Our regular discussions about finances continue to be essential, and I'll still quiz him every month to see if he has claimed any winnings.
- Instead of relying solely on Premium Bonds for their personal finances, we are now considering diversifying our investments to increase potential returns and avoid inflation.
- Given the inconstant prize fund rate of Premium Bonds, we might transition some of our savings into higher-paying cash accounts or personal-finance investment options, such as the easy-access cash account offered by Trading 212.
- As I examine new avenues for investing our savings, I'm mindful of the importance of maximizing returns while maintaining flexibility for accessing funds, especially with our child attending university.
