I was tidying my documents the other day and came across an old Premium Bond certificate that I received as a gift around the time that I was born.
With fingers firmly crossed I checked the website to see if I was a lucky winner, and…… I wasn’t.
Which means that in the past 46 years that I have held them, I have won absolutely nothing in Premium Bond prizes.
What are the odds of winning on Premium Bonds?
The rate of interest on Premium Bonds is based on a monthly prize draw, currently the annual prize rate is a whopping 1.4%.
However, from 1st of May 2020, this will drop further to 1.3%.
This means that, for every £1,000 invested in Premium Bonds, you would, on average, receive £13 a year in interest/prize money.
The odds on winning a single prize from Premium Bonds will fall from 24,500/1 to 26,000/1 in May 2020.
Except, in practice, this is impossible, as the smallest possible prize is £25.
This is worth bearing in mind if you are considering buying Premium Bonds for a child/grandchild. It probably explains my lack of winnings over the years.
In reality however, even if you did get 1.3%, you would still be losing money in real terms. At the time of writing this, UK inflation is 1.8%.
This is not good news for the 22 million people who, between them, own 70 billion Premium Bonds.
Premium Bonds are guaranteed
This used to be one of the big selling points of Premium Bonds. They are issued by NS&I which is owned by the UK Treasury after all.
However, these days, all UK regulated savings accounts are protected by the Financial Services Compensation Scheme. This scheme covers up to £85,000 per person, per institution.
In comparison, the maximum that can be put into Premium Bonds is £50,000, meaning that even the safety factor isn’t such a big deal.
Premium Bond prizes are tax free
Another attraction of Premium Bonds is that the prizes are tax free.
However, this means that they are free of UK tax. As an expat, you should obviously take into account the tax treatment of any prizes in your country of residence.
£61 million in unclaimed prizes
There is currently £61 million in unclaimed Premium Bond prizes, so if you do have some, check their website. You never know…
So, are Premium Bonds a good option for expat investors?
While there is the obvious attraction of claiming one of the two monthly £1 million top prizes, with odds of claiming a single prize of 26,000/1 Premium Bonds are nowhere near as good as they used to be.
There are certainly better ways to allocate savings.
You should not construe the views expressed in this article as personal advice.
You should always contact a qualified financial adviser to obtain up-to-date advice on your own personal circumstances.
The author does not accept any liability for people acting without personalised advice. Nor does he accept liability for those who base a decision on views expressed in this generic article.
This article is based on legislation as at the time of writing. While we regularly update articles, pension and taxation legislation changes on a regular, often sudden, basis.
Therefore, please check for later articles or changes in legislation on official government websites. You should not rely upon this article in isolation.