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Martin Lewis video: Should you keep Premium Bonds now the prize fund has dropped to 1%?

Around 21 million people with a staggering £99 billion saved in NS&I Premium Bonds saw their chance of winning fall this month, as the prize-fund rate dropped from 1.4% to 1%. But should you stick or twist? founder Martin Lewis reveals whether Premium Bonds are still worth it.

Speaking on The Martin Lewis Money Show on ITV last night, Martin explained that the interest on Premium Bonds is a lottery and you're not guaranteed to earn anything. See the video from his show below, as well as our Premium Bonds guide for full details on they work.

The Martin Lewis Money Show – Thursday 3 December

The clip below lasts three minutes and 50 seconds and has been taken from The Martin Lewis Money Show on Thursday 3 December, courtesy of ITV Studios Ltd, all rights reserved. You can turn on subtitles by selecting the keyboard image at the bottom right of the video.

Just bear in mind that the savings rates mentioned are subject to change – check's guides below for the most up-to-date rates.

Embedded YouTube Video

Who can get Premium Bonds?

Each individual can own up to 50,000 £1 bonds, and the money put in is safe. Each bond is then entered into a monthly prize draw. The prize fund dictates how much is paid out annually. So the 1% rate means for every £100 of bonds, £1 of prizes is paid out each year. But in practice that doesn't happen, as the smallest prize is £25, and for a few bonds to pay out £1 million, many need to pay out nothing.

Martin also pointed out: "Don't believe, by the way, people who say newer bonds are likely to win more, that's nonsense. It's just because there are more newer bonds, because the minimum amount you can put in has gone up."

What would someone with average luck win?

Calculating this is complex, but our Premium Bond Probability Calculator works out your odds of winning using ridiculously complex multinomial probability (the algorithm was designed by a post-doctoral cosmology statistician), and it's just been updated with the latest prize distribution.

Martin explained that the tool currently shows:

  • With £100 of bonds, with average luck you'd win NOWT over a year.
  • With £1,000 of bonds, with average luck you'd win NOWT over a year.
  • With £10,000 of bonds, with average luck you'd win £75 over a year (ie, equivalent to 0.75% interest).
  • With £50,000 of bonds, with average luck you'd win £450 over a year (ie, equivalent to 0.9% interest).
But in comparison, the top easy-access savings account currently pays 0.6%, while you can earn between 0.75% and 1.3% with a fixed-rate account depending on how long you're willing to lock away your cash for.
See our easy-access savings guide for all of the best-buy rates. Much higher rates are possible via Help to Save for those on low incomes, Lifetime ISAs for first-time buyers, regular savers if you're putting money away each month, and current account savings for smaller amounts.

Who are Premium Bonds best for?

The Premium Bond prize-fund rate may smash easy-access savings rates, but Martin points out that most people won't win as much as that, and you can earn more with fixed savings. Here's when Martin says Premium Bonds can look better though:
  • They're better if you're saving roughly £10,000+. As Martin said on his show last night: "The more you're saving, the better – over roughly £10,000, they start to look much better."

  • They're better if you're saving for longer, but may need access. Martin said: "With fixed-rate savings your money is locked away, it isn't locked away in Premium Bonds."

  • They really come into their own for the few who pay tax on savings interest. Premium Bond prizes are tax-free – then again, so is savings interest for 95% of people. But as Martin said yesterday: "If you're one of the very few people who use up their personal savings allowance, in that case because Premium Bonds are tax-free, that's a big boost for you."

  • They're better if you don't really care about interest. If the prime aim is to protect your capital and keep it safe, and the interest isn't a big deal, you may as well enjoy the ridiculously small chance of winning large. Martin said: "There are some of you saying: 'I haven't got much money, I'm going to get diddly squat in interest. I don't care about the interest, I just want somewhere safe to put my money and I do like the appeal of the chance of winning a million pounds – even though it's minuscule.' Well then, put your money in Premium Bonds if you want."

Separately, it's worth being aware that NS&I – which runs Premium Bonds – also announced this month that it's delaying plans to scrap paper Premium Bonds prize cheques.

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