Are Premium Bonds Worth It?
If you’ve read my blog post on 10 Ways to Create Passive Income you will have seen that I recommend Premium Bonds. This might be a strange thing as a number of other money-related sites tell you to avoid them! YMMV but what you’ll read in this blog post is my opinion on Premium Bonds and the answer to the question, “Are Premium Bonds Worth It?”
Premium Bonds – The Basics
Premium Bonds have been around for decades – they started in 1956 and since their inception, the value of a Premium has remained the same, One Pound. Jumping to modern times you can only buy Premium Bonds in batches of £100 (or £50 if purchasing them via a Standing Order/DD). Each month, all the Premium Bonds elegible for the draw have a possibility of winning one of the nearly 3 MILLION prizes.
There are some conditions in playing that have to be met. You have to be over 16 years old (or be a parent/grandparent holding them for an under 16 year old), you can’t hold more than £50,000 worth of premium bonds, and that’s it! As long as you have £100 you wish to buy them then you could start buying Premium Bonds today.
Premium Bonds – The Odds of Winning?
This is an interesting one. Premium Bonds are essentially a tombola. Each Premium Bond gives you one ticket in the tombola and each month THREE MILLION tickets are pulled from the tombola. That sounds like a lot of prizes and it certainly is. However this only tells half of the story an there are (roughly) 70 BILLION tickets in each tombola draw. Wowzers! It hardly seems worth it.
To help with comparison I have included this table that shows you how Premium Bonds compare to that other national gambling pastime – The Lotto!
Although the odds of winning when compare to the Lotto look really bad, you have to consider that you buy lotto tickets and then once the draw happens, if you don’t win anything your ticket is worthless. With Premium Bonds you can sell your ticket back at full face value and get your £1 back into your bank account! What an offer! When you consider this it starts to improve the return on Premium Bonds. They are literally risk free, something that can’t be said about the Lotto!
Other People Say They Aren’t Worth It!
It all depends on what you are looking to do. As an interest-based saving vehicle it does not give the best rate of return. If you only hold £100 of Premium Bonds then you can expect to win Zero in a year so your interest rate would be a big old fat 0%. As money making people we want to have our money earn money (passive income) so this seems counter intuitive. If you put that £100 in the bank even most bank accounts would lead you to having at least £1 in interest over the year.
It’s easy to see that, compared to bank accounts and savings accounts, Premium Bonds don’t appear to be good value. This lack of value continues up the prize holding levels until you get to £50,000 held and with average luck you can expect to win about £500 a year – so 1% interest if you want to think like that.
The way I think about it is that this is a lottery. You hold tickets and you are in with a chance of winning a prize. After any period of time you can sell your tickets back to NS&I for exactly what you paid for them. Imagine playing the National lottery for free every week!
How to Improve Your Odds – Hold £50,000 of Premium Bonds
As outlined above, the best way to improve your chance of winning is to hold £50,000 of Premium Bonds. A great blogger called KatyKicker has actually done the hard work of holding £50,000 of Premium Bonds so you don’t have to! A person with an average amount of luck, holding the full allocation of Premium Bonds should win about £500 in a year. Katy Kicker has managed to beat this amount. Read her blog about how she managed to get £50,000 of Premium Bonds and how much she won each month for an entire year.
But don’t you need to hold £10,000+ to be in with a chance of winning a big prize?
When you look at the stats, of course the more you hold the better your chances of winning. However, each bond has exactly the same chance of winning as any other bond. It doesn’t matter if it was bought just before the last draw or it was purchased 30 years ago. To prove this point, NS&I recently tweeted out about a winner.
A person in #Bradford with just £20 of #PremiumBonds has scooped £100,000 this month. The winning Bond was purchased in November 1989. Was it you? Check online: https://t.co/kqVov24yEC pic.twitter.com/Icyx2rKa6G
— NS&I (@nsandi) 8 May 2018
Even ignoring any other wins, taking into account compound interest and rounding up the interest to 3% per year every year, the holder of these Premium Bonds would have made about £27 in a bank account as interest. However they HAVE won £100,000. This shows that anyone can win and the amount you hold doesn’t affect the chance of 1 bond winning.
Final Thoughts
I have replaced buying lottery tickets with buying Premium Bonds. This is money I was spending anyway and now I get the chance to win money without my money being at risk. My holdings aren’t in the £10s of thousands but who knows how long it will take me to get there. I’ve asked NS&I to re-invest any winnings I get into more premium bonds. This could be seen the same as compound interest, my winnings will then be able to generate additional winnings. Once I hold £50,000 of Premium Bonds they will have to pay me rather than re-invest but I guess at that point, it really will be a nice problem to deal with!
Do you hold Premium Bonds? Do you think they are worthwhile? How much have you won from them? Let me know in the comments below :)
I have had £5 of Premium Bonds since 1967 and never won. £5 was a significant amount of money then. It isn’t now. While the mean rate of return is less than inflation, the chances are that you will lose as I have done.
Hi Tim,
£5 in 1967 would be worth about £67 today (with regards to inflation).
£5 put into a 3% bank account in 1967 would now have £22 in it (compound interest).
I’m not sure ‘losing’ is the same as ‘not winning’. At any point in the previous 50 years you could have withdrawn your £5 and spent it how you liked. Sure, today your £5 is worth less than it was in the 60’s but each month you have been in a prize draw where you could (but haven’t) won something.
People with low holdings do win, the tweet from NS&I shows that.
The lottery, NS&I and also just banks, are just places to put your money. Some people do ok out of them and others don’t. I hoped my blog post explained this.
Thanks,
The Reverend
I have had £10 of premium bonds since I was born in 1961. I won £50 around 1984 and I am very happy with that as a return. I would consider buying more once i reach the protected limit in my high interest savings account. It is a bit of fun, your money is safe and it’s better than the lottery for overall value (for me) so far.
Hi Elaine,
I look at it as a bit of fun. I also found out recently about £100 of PB I didn’t realise I had. They are just there doing nothing except occasionally winning me a prize!
And people do win Jackpots so I think it is worth doing, but only for fun. If someone used PB as an interest earning savings account they will be quite disappointed.
🙂
Thanks,
The Reverend
I went for PB’s as a way of saving for a holiday this year.
Being in a PB, it means I have a chance to top up the fund with any winnings (no luck so far, with about £2k saved) but it also means I’m less likely to fritter the money away vs if it is just held in my current account (Pizza! Cinema! Clothes! Computer Games!)
Granted, putting it in a savings account may net me some interest, but nothing really worthwhile – I prefer the chance of even a small PB win over the guaranteed small bit of interest over a 4-5 month period – and it certainly beats the lottery in terms of being able to get your investment back in full (inflation notwithstanding).
When my holiday’s over, I’m going to start again and this time try to keep the money in for a longer period and go bigger on my investment – having that potential to win something is a good incentive to keep the money in there, so I’ve found it has really helped me save up and also do without some frivolous purchases that would reduce the amount I can spend on the family holiday (e.g. That Domino’s Pizza could have paid for a days Pedalo Hire!).
If I win, great. If not, I still have my money that I would otherwise have spent.
Hi James,
I think you have the ‘right’ idea about Premium Bond investment. Its not the best savings scheme but it does have some benefits that shouldn’t be overlooked.
Heck, people could stop playing the lottery and play this for ‘free’.
In the real world, is there any difference in experience between 40,000,000 to 1 odds and 1,000,000,000 to 1 odds? I don’t think so.
🙂
Thanks,
The Reverend
Hi,
We initially didn’t win anything in PB for years, then a nice strike of luck had us win £50 three months in a row. Not for everyone, I once won £18 in the lotto, “reinvested” it and got a big fat nothing back. Would have been better getting a pizza with it.
Hi Luke,
I think I would have preferred the Pizza, also!
😀
I’m winning £25 every 3 months at the moment. Not millions but then I don’t hold millions. If I win in August then my 3 monthly winning streak will have continued.
I find it is a more interesting way of locking my cash away for a bit.
Thanks,
The Reverend
£25 every 3 months isn’t bad at all considering I’ve only just ‘scooped’ £25 after several years of nada. Hope you got a win for this month to carry on the lucky streak! 🙂
Hmm Premium Bonds are definitely changing, and not for the better where prizes are concerned but I still think ‘might as well’ if you have a little cash to spare as it’s a no-lose situation. I’ve had under £1,000 in there for several years but FINALLY had my first win about 2 months ago… £25, but I’m not complaining as I was quite happy to get the winning email. If you can afford it and it’s not a chunk of money you’d really get interest on in a bank, then I’d say ‘worth a punt’. x
Hi Caz,
I’ve not won anything for a couple of months. Hopefully I’ll get another win this year. 🙂
Thanks,
The Reverend
£25 every 3 months isn’t bad at all considering I’ve only just ‘scooped’ £25 after several years of nada. Hope you got a win for this month to carry on the lucky streak! 🙂