Martin Lewis: Money Saving Expert warns Premium Bonds savers they may be missing out on better returns
Lewis says relying on Premium Bonds could mean missing out on better savings 💷
- Martin Lewis warns Premium Bonds may give lower returns than top savings accounts
- Most savers earn less than the advertised 3.6% because winnings depend on luck
- Bigger holdings, like £60,000, come closer to average returns but still lag behind top rates
- Premium Bonds are tax-free, which can help higher-rate taxpayers
- Lewis suggests using high-interest accounts for steady growth and small lottery spend for fun
Money-saving expert Martin Lewis has issued a stark warning for anyone holding NS&I Premium Bonds, suggesting that many savers could be missing out on better returns elsewhere.
The advice comes after a listener asked his BBC podcast where they should put a £60,000 savings pot, questioning whether Premium Bonds were still a smart choice.
Speaking on his show, Lewis explained that while Premium Bonds offer the chance of tax-free prizes, the odds of winning make them a less reliable way to grow money compared with traditional savings accounts.
“The Premium Bond prize fund rate is 3.6 per cent,” Lewis said. “But that doesn’t mean if you put £100 in, you’ll get £3.60. The smallest prize is £25, so many people win nothing, and a few win more. The median return for most people is actually zero on a £100 holding over a year.”
Lewis explained the difference between the average return and what most people actually get. While the overall average return for all Premium Bonds is 3.6%, most individual savers will earn less because winning depends a lot on luck.
People with bigger amounts, though, are more likely to get closer to that average. For the couple with £60,000, he estimated they would probably earn about 3.2 – 3.3%, still lower than the best savings account rates.
“So then the question is, if we factor in typical luck, how good is 3.2 or 3.3 per cent?” Lewis said. “The answer is not very. The best easy-access accounts are paying about 4.5%, and the top fixed-rate deals are similar.”
He did note that Premium Bonds remain tax-free, which can make them relatively more attractive for higher-rate taxpayers who might otherwise lose a significant chunk of interest to tax.
Lewis advised savers to maximise their cash ISA allowance first, and then consider Premium Bonds for any leftover taxable savings.
For most savers, however, Lewis argued that placing money in high-paying accounts offers more reliable growth.
“If you really want the thrill of winning, you could take a small sum from your savings and play the National Lottery. That way, your main savings earn guaranteed interest while you still get the excitement,” he suggested.
The warning underscores a key point for anyone tempted by the chance to win big with Premium Bonds: while the lottery-style allure is appealing, statistically, most savers will earn less than they would in a standard savings account.
For those prioritising financial growth over the occasional thrill, Lewis says, a high-interest account is the smarter bet.