Money Bloggers Discuss

Premium Bonds Increase Rate – But Is It Worth It?

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As interest rates continue to increase, the world of savings and investments seems to be changing at a slower pace.

While there are some places you can start to get better rates on easy access savings, some high street banks have been a little slower to react to the increases, with rates seemingly a little too low.

However, the government-backed Premium Bond rate has been undergoing an increase.

In July 2023, the rate increased to 3.7% with an extra £39 million in prizes.

The odds remained at the same (24,000 to 1). However, there are more chances to win.

From draws in August 2023, the rate again increased. This time, it rose to 4%, the highest rate since 2007.

The odds of winning a prize increased to 22,000 to 1 (the best in 15 years).

Unlike traditional savings accounts, you cannot guarantee to receive any “interest” each month but are instead entered into a draw for the chance to win cash prizes.

These are as low as £25 – £100, medium value prizes are £500 or £1,000, and there are higher value prizes from £5,000 up to £1,00,000.

You can hold a maximum of £50,000 in Premium Bonds.

Are Premium Bonds worth it?

Even after the rate increase, we’ve asked the UK Money Bloggers and Content Creators community for their opinion over whether it’s worth starting or continuing to save with Premium Bonds or if there are other options for any savings you might have.

At Saving in London City, Taryn shared how much she won on her account, which may be more than holding savings elsewhere.

“I’ve kept my house deposit in premium bonds for several years and it works well for me. I’m not tempted to shuffle money around or dip into my savings as they are out of sight, out of mind.

“I have had quite a lucky streak – I won £500 in one month last year!

“I know they aren’t for everyone, but I like the opportunity to possibly win a larger prize.”

Mr Deals Manchester told us:

“For me as somebody who doesn’t pay tax on interest earned on savings, I would much rather have a guaranteed 4% AER from Chip than an almost certainly lower return from NS&I.

“In addition to that, if I stick money in Premium Bonds now, I have to wait over a month for the first draw – if I stick money in an easy-access savings account, I start earning immediately.

“Great news for those buying premium bonds as gifts though – which I still think is a fantastic idea.”

Dan, from The Financial Wilderness, doesn’t feel Premium Bonds are worth it:

“We say no – whilst it’s an appealing looking headline rate, much like the lottery, it’s skewed by the higher prizes – most people will see a lower actual rate of return than the 3.7%.

“With some excellent savings rates out there without the element of uncertainty, we don’t see premium bonds as attractive enough to merit consideration still – even if the approach is perhaps a bit more fun than saving!”

Sara Williams, at Debt Camel, believes Premium Bonds are useful as a way to save for your emergency fund.

“There are a few good reasons to hold premium bonds for some people. As an emergency fund you can access but is a little bit more than a click away, so you aren’t tempted to dip into it.

“As a safe home for savings if you are a high rate tax payer who doesn’t want to invest their money or use it to clear your mortgage. As an alternative to a regular monthly spend on lottery tickets – it gives you some chance of a big win but also helps build a small nest egg.

“But you can get a higher rate of return that is guaranteed on many instant access accounts. And most people do not pay tax on savings… including almost all children.”

Andy Webb, at Be Clever With Your Cash, created a YouTube video with more detail on both the Premium Bons rate increase, as well as the increase to the Chip Easy Access account.

You can watch the video on his channel:

Katy Royals from The Twenty Per Cent, told us:

“Premium bonds can be a great place to keep your emergency fund. They’re still accessible but it’s difficult to get your money out on a whim (it takes 3 business days to remove your funds).

“The increased prize fund is unlikely to make a major difference but could be an extra incentive for those already holding cash in premium bonds.”

Yasmin Purnell, The Wallet Moth, considered other savings accounts out there that there can match the rate:

“For some, premium bonds are an attractive savings choice due to their easy access and, much like the lottery, the chance to win the bigger prize draws each month offers a rare opportunity to dream big.

“However, there are multiple savings accounts available that offer the same tax benefits and a higher rate of return. If you’re contemplating between premium bonds and a high-interest savings account, you’ll usually find a higher (and guaranteed) rate of return from the savings account.”

The views given are of the individuals and not UKMB.

The UK Money Bloggers and Content Creators specialise in a variety of personal finance topics.

Get in touch if you would like to feature or interview community members.

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