Savings accounts vs Premium Bonds: Savers ‘missing out’ on higher returns | Personal Finance | Finance
Savings experts have hailed traditional savings accounts over Premium Bonds, despite the latest boost to winning odds and prize fund rate.
Savers who invested all of their funds in Premium Bonds are said to be “missing out” on returns as the odds of winning remain slim.
Following consecutive Bank of England Base Rate rises, savings providers have been under pressure to offer better interest rates. This has resulted in leading fixed rate accounts hitting 6.1 percent at present, while interest rates on easy access products are reaching as high as 4.75 percent.
To remain competitive, NS&I has improved its Premium Bonds offering once again, with the odds now standing at 21,000 to one for September’s prize draw, representing the highest level for more than 15 years.
This means that there will be 90 prizes of £100,000 in the monthly draws of all investors who have purchased bonds, compared with 77 at present and up from just six in May last year.
However, savings experts have said that traditional savings methods, such as easy-access savings accounts and ISAs, still remain a good option for reliable and consistent savings.
Lucinda O’Brien, expert at money.co.uk savings accounts, said: “Despite Premium Bonds offering the chance to win tax-free money, swapping regular interest for a chance to win money in monthly prize draws means you are likely to be missing out on savings.
“The odds aren’t in your favour when you compare 21,000 to one, to earning interest on your savings 100% of the time in a typical savings account, as only the minority win on Premium Bonds and even then it may only be a small prize amount.
“You also have to wait a full month before you’re eligible to win, whereas you start earning interest straight away in a normal savings account.”
She added that, while many people are attracted by the “fun and exciting lottery effect” of Premium Bonds, they are still “not so great” in terms of returns.
Ms O’Brien said: “Despite the increased number of prizes, there are still only two winners each month of the £1million jackpots – out of the 22 million investors who hold Premium Bonds.
“If you want to generate a more reliable income from your money, you might want to consider a traditional savings account, cash ISA or investments, including stocks and share ISAs. Otherwise you might be waiting for a cash injection that never comes and miss out on years of savings earned gradually in interest.”
Myron Jobson, senior personal finance analyst at interactive investor, said that while the Premium Bonds prize fund rate will hit a 24-year high from next month, it does not mean the average person will get the heightened rate on their savings.
Mr Jobson said: “Premium Bonds can be fun lottery-style alternatives to an easy access savings account and might tempt some savers hoping for good luck to bolster their wealth amid the cost of living crisis.
“But the fact remains that while some savers might be lucky enough to hit the jackpot or win big early on, others may save and wait for long periods for even a small return.”
He added that, those who can afford to put money away for five years or more could consider investing for the potential of “inflation beating returns” that far “outstrips” savings rates.
Mr Jobson said: “Investing can be volatile on a day-to-day basis and while the potential for greater returns from the stock market comes with inevitable risk, taking a long-term view means you can smooth out some of those highs and lows whilst benefiting from the long-term potential that comes with this approach.”