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Premium Bond Prize Reduction

by Jess Chantler on 14·02·2017

More than 21 million investors can't be wrong can they? Premiums Bonds have long been held as the risk-adverse investors saviour as, being operated by National Savings & Investments (NS&I) which is Treasury-owned, your capital is as safe as it gets. However, the big question has always been - Are they worth it?

They are effectively a savings account where the interest is accumulated and paid to investors as part of a monthly and annual prize draw. As many investors anticipate that "You've Won!" letter, I wonder how many of them genuinely know the odds of winning?

NS&I have announced that from May 2017, for every £100 held in Premium Bonds the average pay out of £1.25 a year is reducing to £1.15 a year. Naturally it follows that where the number of prizes have fallen, from £2.225million to £2.219million overall, the odds of winning anything at all have lengthened.

As the smallest prize is £25, this currently means for every 20 investors only 1 will win however from May this reduces to 1 investor winning out of approximately every 22.

Although they have declared the £6million prize reduction will result in more £25 prizes being up for grabs, this does carry a reduced chance of winning a higher amount. For example, the odds of winning a £10,000 prize has gone from 1 in 2.2bn chance to 1 in 2.9bn.

The prize cuts affecting the lower end of the scale, those above £25, have been hardest hit. The odds of investors winning £50 or £100 is currently a 1 in 940,598 chance however from May this will now be stretched to a 1 in 3.2million chance.

It would appear that Premium Bonds seem to defy logic. With limited prizes and lengthening odds of winning anything at all, you might question whether your capital would be better placed in a cash account. At least the interest would be applied to your savings rather than pooled between millions of investors.

However, this is precisely why Premium Bonds are still looking fairly attractive. With negligible interest being paid for cash held on deposit it frees investors to try for a chance at winning a jackpot prize. If you've got nothing to lose - why not give it a go?

It's clear Premium Bonds are not as good as they used to be, but with the option of earning little to nothing on deposit, or nothing to significant amounts within Premium Bonds, it appears to be a no brainer for those 21 million investors.