Still holding on to Premium Bonds that never win? This is what it’s really costing you

Most of the 23 million savers Premium Bonds He bought them with the chance of winning the £1 million jackpot – but with the reassuring expectation that they would also profit from the smaller generous prizes handed out each month.

But shockingly, almost two in three savers who put money into the savings product run by Treasury-backed National Savings and Investments will never win a reward.

Approximately 14.3 million (or 62 percent) of Premium Bond holders never won a prize; By Freedom of Information (FoI) request investment platform AJ Bell found it.

It was revealed that the average saver who has never won a reward has accumulated £128.91 in Premium Bonds and held it for just over eight years.

It may seem like a small amount, but those windfall savings will be hobbled by a nasty cocktail of loss of spending power and missed growth opportunities. And many savers will have a much larger amount stored in these accounts. So how much are Premium Bonds? Really Does it cost you?

Loss of spending power

If your bonds are disappointing you every month, your savings are going down the drain.

This is because of the way Premium Bonds work. Savers can invest between £25 and £50,000 and, unlike regular savings accounts, they won’t receive regular interest payments.

Instead, every £1 bond is entered into a prize draw, with tax-free prizes worth between £25 million and £1 million offered each month. Savers can cash out their original bets at any time.

While bondholders are never guaranteed to win, the average saver can expect a 3.8 percent return from this month’s drawing.

This means that for every £100 held in Premium Bonds, around £3.80 is currently paid out in rewards.

Each month two lucky winners win £1 million each, with smaller prizes available from £100,000 up to £25.

Each bond has a 1 in 22,000 chance of winning any prize, and if you don’t win, you don’t get your money’s worth.

AJ Bell’s Charlene Young explains: ‘This means you lose spending power over time. inflation and the impact can be shocking.’

If you don’t win any prizes, your money won’t go as far today as it did eight years ago because prices have risen with inflation.

Young says the average person who saved £128.91 in Premium Bonds eight years ago and didn’t win has lost £64.84 in real terms over that period.

This is because prices have risen by 50.3 per cent in the 8.1 years up to this February (the average length of time savers have held money in Premium Bonds) for which FoI details were available.

This holding, worth £128.91, would currently be worth £193.75 to have the purchasing power it had in 2018.

What can you buy?

This lost spending power may seem arbitrary, but it will limit how far your money can stretch when you spend it.

Take, for example, the unlucky holding of £128.91 on average.

Eight years ago this would correspond to around 104 liters of petrol, whereas now it will only take 81 litres.

In 2018, £128.91 might have managed to buy six to seven meals at a semi-decent restaurant. Now it will only buy around four to five.

Or take a food store in 2018. This amount could easily cover the weekly grocery store for a family of four. But now the same family may need to find an extra £30 to close the same store.

missed opportunity

Not only did the funds in these bonds lose spending power, they missed the opportunity to grow as they might have elsewhere.

If one of these savers had deposited their money in cash, according to AJ Bell’s calculations, their pot would have increased to £153.35; This meant an increase of approximately 19 percent.

This modest growth pales in comparison to the 50.3 percent increase in Retail Price Index inflation over the same period.

But if they had invested the money in the stock market it would now be worth £312.12. This assumes the sum is held in a global tracking fund that has increased in value by 142 percent over the last 8.1 years.

Young says: ‘It makes sense to consider investing during this type of period because five to ten years is usually long enough to ride out the short-term ups and downs and take advantage of the long-term growth potential.’

This climb more than doubles the original total.

But it wouldn’t grow at all with the money in Premium Bonds.

Plus £128.91 is just the average non-winning holding. This means many savers will have more than this in their account.

Take someone with £1,000 worth of Premium Bonds that didn’t win. If they had invested this in a global tracking fund that tracks the stock market, they would now have £2,420.

Be patient to win

Despite these damning figures, there is one dream that keeps savers holding on to their Premium Bonds: the dream of one day winning the £1 million jackpot.

This is extremely unlikely even for those who have saved £50,000, let alone £128.91.

The odds of winning the £1 jackpot in last month’s draw were one in 68.4 billion.

But it is possible. Take the £1 million prize from March last year. The winner from Cleveland scooped the prize with just £100 saved in Premium Bonds.

This is the smallest amount for major gains in the last decade. And they held the bonds for less than two years.

The smallest holding to win the jackpot was £17 in July 2004. The winner was in Newham, east London.

Young says: ‘If you’ve left money in bonds for years, it’s worth thinking about how much you’re earning and asking whether you’re keeping up with inflation or whether your money could be working harder for you.’