Recommended article – 5 tools to boost your kid’s financial futures
Premium Bonds are the UK’s largest savings product, with more than 21 million people saving over £118 BILLION in them.
But with other savings rates on the rise, and now beating Premium Bonds, should you still be buying them?
I started buying Premium Bonds at the end of December 2019 which meant my first round draw didn’t qualify until February 2020.
After exactly 30 months with ‘skin in the game’, I wanted to take a look back and reflect on how it’s gone…
What are Premium Bonds?
Premium Bonds are quite a unique savings product.
Offered by National Savings and Investments – a government backed savings vehicle created to raise money for government and public services – people put their savings into ‘bonds’ which are then entered into a prize draw to be in with a chance of winning a cash prize.
Some of the facts:
- Each bond costs £25
- You can put in a maximum of £50,000
- The prize draw is done once a month
- All winnings are tax free
- Prizes range from £25 – £1mil (there are 2 winners of the top prize each month)
- If you win, you can either opt to receive the cash winning as income or reinvest it back into more bonds
- You’ll never lose your original capital, but there is no guarantee of getting a return on your money
What are the chances of winning?
It can get a little complicated if you went to get into the nitty-gritty, so I’ll let this video fo Martin Lewis from Money Saving Expert tell you:
How much have I put in?
I’ve staggered my deposits in varying amounts just based on how much spare money I have had left over over this time-frame.
I use Premium Bonds as an ‘overflow’ savings account after I’ve maxed out my Lifetime ISA; effectively as a secondary house deposit pot.
My first round of bonds was valued at £150 and over 2020 deposited a total of £10,875 with individual deposits ranging from £150 – £4,875.
A further £50 was deposited over two £25 instalments from two separate prize winnings.
So, if we take my deposits as a whole and compare them to my winnings, that’s a 0.45% return.
HOWEVER, both these two prize winnings came from a single £3,000 deposit. So, in effect, we could say I actually received 1.66% return on the £3,000, but 0% on the remaining £7,875.
Deposits for 2021 didn’t start until April, and this year was a lot quieter than the previous one.
I deposited a total of £2,025 with individual deposits ranging from £250 – £1,775.
A further £100 was deposited over four £25 instalments from four separate prize winnings.
Again, taking my overall deposits with the addition 2021’s contributions, I received £100 from £12,900. Taking these deposits as a whole, that’s a 0.75% return.
HOWEVER, one of these £25 prizes came from the previously mentioned £3,000 deposit from 2020.
A further two £25 prizes (£50) came from a single deposit of £4,875, made in 2020 also.
And the final £25 prize came from a single deposit of £1,000, made in 2020 also.
None of my winnings for this year came from a deposit made in 2021.
2022 (so far)
Deposits so far in 2022 have ranged from £100 – £1,525 totalling £1,925.
A further £50 has been deposited over two £25 instalments from two separate prize winnings.
And taking my final overall deposits with the addition of 2022’s contributions, I received £50 from £14,825, making that a 0.33% return.
One of the £25 prizes came from a single deposit of £4,875, made in 2020.
The other £25 prize came from a single deposit of £3,000, also made in 2020.
Again, none of my winnings have come from a deposit made in 2021 or 2022.
Examining the results
So overall, every prize I have received has come from just 3 of my deposits (£1,000, £3,000, and £4,875).
None of my prizes amounted to more than the minimum £25 win. Although on one occasion I won £50 in one prize draw, but from two separate wins from the same strip of bonds.
The total is as follows:
- £1,000 x1 win
- £3,000 x3 wins
- £4,875 x3 wins
In total I have deposited £14,825 and returned an overall prize fund of £175, making that a 1.18% return over the 2.5 years.
Taking the prize winning bonds in isolation, they’ve made me the following returns:
- £25 from £1,000 – 2.5%
- £75 from £3,000 – 2.5%
- £75 from £4,875 – 1.53%
However, with prizes only coming from 3 out of 12 of my deposits, a sizeable £5,950 has won me nothing (over 40%!).
Of the 9 deposits that haven’t won me anything, the amounts range between £100 – £1,775.
Has it been worth it? For me, yeah probably.
As I mentioned, this has only ever been a secondary house deposit account. I will have surely received better returns on the WHOLE amount if I had just stuck it in an S&S ISA – and not just returns on the 3 out of 12 deposits – but it’s a safer mid-term place to put some cash.
Returns were especially reasonable in 2020/21 when cash savings rates were at an all time low, but as rates start to go up, cash savings may be better placed elsewhere.
I don’t expect to win the big prizes, but enjoy the lottery-style draw and receiving smaller semi-regular wins from my deposits is more than I’m happy with considering I want this money in ~3 years.