Premium Bonds warning for pensioners who hold them | Personal Finance | Finance
Older Premium Bonds savers have been encouraged to think through if the savings scheme is right for them. Holders may be thinking of cashing in their Bonds as the prize fund rate has dropped several times this year. The rate fell from 3.8 percent down to the current 3.6 percent from the August draw, after rate cuts in April and January.
Rosie Hooper, chartered financial planner at Quilter Cheviot, said Premium Bonds were still a popular choice for many savers despite the odds of winning being “relatively low”, currently at 22,000 to one for each £1 Bond that goes into the monthly draw.
She said: “For some, it’s less about returns and more about the enjoyment and peace of mind they offer. That said, Premium Bonds aren’t the most effective way to grow your money over time, particularly if you are young.”
However, she said those in their later years may appreciate some of the benefits of the scheme. The finance expert said: “In later life, however, Premium Bonds can still play a valuable role. They’re capital secure, easy to access, and any winnings are tax free.
“For someone living on a fixed income, they can act as a flexible emergency fund that provides both financial security and a little monthly excitement.” One advantage of Premium Bonds is that provider NS&I is backed by the Treasury, meaning all your deposits are secure.
You can hold up to £50,000 in Premium Bonds. Many people arrange their account so that when they win a prize, the funds are used to buy more Bonds.
For those who are thinking of cashing in their Bonds, Ms Hooper offered some suggestions for other accounts to look at. She said: “With interest rates on savings accounts and fixed-rate bonds having risen in recent years, many alternatives now offer better guaranteed returns.
“For those looking to build their wealth or protect their savings from inflation, options such as investing in a stocks and shares ISA may be more suitable. A diversified investment portfolio, held over the long term, has a much better chance of growing and compounding in real terms than Premium Bonds ever will.”
Tom Francis, head of Personal Finance at Octopus Money, said that for most people, a cash ISA or a “competitive” savings accounts will perform better than holding your savings in Premium Bonds. He explained: “The chances of a big Premium Bond win are slim.
“In February 2025, fewer than 0.001 percent of the UK’s 24 million bondholders won £50,000, and just 0.007 percent took home £5,000. Most prizes are much smaller, and the average wait to win anything at all is 3.5 years.”
You have a better chance of winning if you have more holdings, as this means you have more entries into the monthly draw. Mr Francis said: “When you look at the jackpots, the odds are skewed towards the wealthiest savers: in the past five years, 94 percent of million-pound winners held more than £10,000 in bonds, and three quarters held over £25,000.
“By contrast, a good savings account pays guaranteed interest from day one. Over £4.25 billion has been held in Premium Bond accounts in the UK that have had no activity in the past decade – earning zero interest, eroding individual wealth and missing the opportunity to grow through more effective investment vehicles.”
