More than 24 million people have their money in premium bonds, which are a kind of savings bond offered by Government-backed National Savings and Investments (NS&I).
This followed a fall of 0.15 per cent – from 4.15 per cent to 4 per cent – in January, which is less than the top paying easy-access accounts.
Here, The i Paper speaks to the experts to find out.
Holders buy £1 bonds with each having an equal chance of winning, so the more you buy, the more your chances improve.
She said: “Premium bonds do not pay interest, but these can appeal to savers who want to test their luck for winning big in the prize draw.
Are they tax-free?
Premium bond prizes are paid tax free. But for many people, that’s no longer a bonus.
You only need to pay tax on it if you’re a basic 20 per cent rate taxpayer earning more than £1,000 interest a year, a higher 40 per cent rate taxpayer earning more than £500 interest a year, or a top 45 per cent rate taxpayer.
Premium bonds are all about luck, but the odds of winning have fluctuated significantly over the past few decades, influenced by changes in the prize fund rate, the number of eligible bonds, and economic conditions.
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“Each £1 bond has an equal chance of winning, so the more you hold, the greater your odds. The maximum amount you can hold in premium bonds is £50,000.
Is now a good time to buy premium bonds?
The tariff turmoil has raised the likelihood of more interest rate cuts by the Bank of England this year, and the market is pricing in around three more, according to Sarah Coles, head of personal finance at Hargreaves Lansdown.
Coles said there will be plenty of people who plump for premium bonds, deciding that in a low interest rate, low inflation environment, they’ll pay a smaller price in terms of lost interest.
For example, the best easy-access rate is with Chip offering 4.76 per cent. Cynergy Bank also offer a one year fixed rate of 4.65 per cent.
Coles said: “There’s the risk that inflation remains higher. We don’t yet know what the impact of the tariffs will be, but there’s a chance it will push prices up faster.
“Given that that in the average month, the average bond holder wins nothing, if you have average luck, you will lose the spending power of your savings once inflation is taken into account.
Premium bonds may suit people who want to put a sum away that they can afford to lose the spending power of their money, or those with significant sums saved for a short period of time – such as those putting money aside for a tax bill.
But it is unlikely to suit people saving for years and trying to build their savings pot for a specific goal, or anyone for whom the priority is staying ahead of inflation.
“Premium bonds won’t be right for everyone, but they will not doubt remain popular as NS&I are backed by the Treasury.”
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