Growing numbers of savers are stuffing the maximum amount allowed into Premium Bonds – and, on the face of it, that seems like a crazy thing to do.
No fewer than 1.4million savers hold the maximum £50,000 – a record number and more than double the figure six years ago.
There is a chance that these holders could win a big prize, but there is also a risk every month that they could earn not a penny on their substantial savings.
By comparison, they could earn a guaranteed 4.4 per cent in the top-paying easy-access account – offered by Santander-backed Cahoot.
That means they are passing up the chance to earn £2,200 in interest over the year (before tax).
But there are two reasons why maxing out your Premium Bond holdings may not be such a daft idea. First, you have a chance – albeit tiny – to win a life-changing prize.
Popular: No fewer than 1.4million savers hold the maximum £50,000 worth of Premium Bonds – a record number and more than double the figure six years ago
There are two £1 million jackpots paid out every month, along with around 76 prizes of £100,000 and 152 of £50,000.
This month, the two big prizes went to holders with the maximum £50,000 bought in 2015 and 2024. Of course, you don’t need the maximum amount to win the top prize.
Earlier this year, a lucky saver from Yorkshire won the jackpot with just £100 worth of bonds bought in 2023. But the bigger the holding, the greater your chances.
Second, Premium Bond holders do not pay tax on their winnings. If you hold £50,000 and you win £1,800 over the year – which is the average prize rate of 3.6 per cent – you keep all of it.
If you had that money in a savings account paying 3.6 per cent and had exceeded your personal savings allowance, you would have to hand over £360 in tax if you are a basic-rate taxpayer, and £720 if you are higher-rate.
Two-thirds – around 14 million savers – have never won a prize. The most common prizes are £25 (2.6 million), and £50 or £100 (1.7 million apiece).
But what savers love is the thrill of the draw. Friends are more than happy to tell me they have won, no matter how big their prize is.
The chances of winning any prize is 22,000 to one, but the more you have in, the better the odds.
More savers are likely to boost the amount they have in Premium Bonds if Rachel Reeves cuts the cash Isa limit from £20,000 to £10,000 in her Budget in two weeks’ time, as is widely feared. Many would prefer to take their chance on Premium Bonds than pay tax on their savings.
Doubtless some of the recent surge in deposits has come as a result of people taking their tax-free cash sum from their pension pots for fear that the amount you can take will be cut in the Budget.
So far this year we have ploughed an extra £6 billion into Premium Bonds – even though the prize fund rate has fallen from 4.15 per cent since last December.
It is surprising because, overall, the amount going into NS&I as of September – the latest figures available – fell by £636 million, forcing it to raise the rate on its Guaranteed Growth and Income Bonds last week.
The one-year bond went up from 4.04 per cent to 4.2 per cent for new savers, pushing annual interest from 3.97 per cent to 4.13 per cent if you take it monthly.