Money expert Martin Lewis has issued a warning to people saving with Premium Bonds – because it’s not worth it unless you have the maximum or close to the maximum amount.
Martin returned with the latest episode of The Martin Lewis Money Show Live on Tuesday, December 2 in which he set out all sorts of new advice for people with savings.
There, he issued a warning over Premium Bonds, telling viewers he is ‘not the biggest fan’ of the NS&I product and that most people will be better off with a Cash ISA unless they have a lot of money in Premium Bonds.
One audience member, Sophie, asked Martin: “I recently opened up an ISA to save for my first house and I’ve got the full amount in there and I’ve got another £16,000 saved in Premium Bonds, and I’m just wondering is it worth opening up a Cash ISA and transferring my savings there, or just sticking with Premium Bonds?”
Martin then replied: “Well people will know I’m not the biggest fan of Premium Bonds. The Premium Bond is a prize draw where your money is safe but the amount of interest you get is based on a prize draw. The current prize fund rate is 3.6%.”
Martin then explained that 3.6% is actually pretty low compared to a lot of other savings accounts on the market right now.
He added: “So look, 3.6% isn’t close to any of the top easy access savings, and these Cash ISAs are tax-free, but more than that, because that is the mean average, someone with typical luck would win the mean average, in other words if you lined up everybody with the same amount of Premium Bonds in a row, how much would the person in the middle win?
“And the person in the middle would always win less than the prize fund. You’re more likely to win closer to the prize fund the more you’ve got. £16,000 isn’t bad, the closer to £50,000 the more likely you are to win it.”
He warned: “For me Premium Bonds are only worth it for those people who are high earners, who are paying tax on their savings and who can put up to £50,000 in.
“So I can’t say which will win because you might be the one person who wins £1M, but based on statistics and typical luck, you would actually need to be very lucky for Premium Bonds to return more on £16,000 than the top Cash ISA. That’s the only way I can phrase it. You’d have to be very lucky for Premium Bonds to win. It’s not impossible that they do, but your much safer bet is to go with the top Cash ISA.”
The Martin Lewis Money Show Live December 2 episode is still available to watch via ITVX.