This is a question that I have been asking myself for a few years now. So, with some spare money from the sale of an investment needing a place to call home for a while I decided now was a good time to run this test. I will publish the results here for anyone else who might be interested!
About the experiment
On the 20th January 2025 I deposited £49,999 to my premium bonds account. This is £1 less than the £50k limit as I had already set up an NS&I account years ago but had not touched it since! The rules state that you have to hold your money in your Premium Bonds account for a whole month before your first draw which means I’m entered into all draws as of the 1st March 2025 onwards.
I ran this little experiment for six months or 6 draws to be exact. At the end I said I would publish the results and work out if I would have been better off just putting the money in a savings account or in fact I did the right thing and took a punt with Premium Bonds!
Can Premium Bonds beat savings rates?
This is my aim to be honest. So, for comparison, I will be using the instant access savings account I hold some other savings in. This at the time was currently paying 4.55% – Some quick maths tells me that I need to win on average each month around £140 to break even with £50k deposited.
The reason why I’m not opting to save this money in a regular savings account is that I can only earn £500 a year tax free on savings! I’ve also fully subscribed to my Stocks and Shares ISA this year!
I’m not expecting to win the million pounds or even any of the bigger prizes. I’m being realistic and I am simply doing this to try and get a better equivalent rate than by putting the money into a savings account and not getting taxed on it!
However, if the NS&I computer, Ernie, wants to award me one of the larger prizes I would be more than happy to accept!
What I won during the time
My £50,000 was invested for 6 draws and I won money every month. It would have been good to run this test for 12 months but I needed the money before this!
Maybe in the future I will run the test again but for a longer period of time.
In total I won £700 and that works out about £116 a month. Not great to be honest but it was a good test and the winnings tax free! This experiment was just a bit of fun and a place for my money before it was needed to be reinvested into a brand new investment.
Goodbye bonds!
As you can see below I have sold up, taken my money back and run for the hills! OK, not exactly but it does mean the end of this experiment.
Onwards to a new adventure!
Premium Bonds information
Since publishing this page I’ve had a few people ask me questions relating to PBs. I’ve included some quick answers below to the most common things I am asked.
Remember, you don’t have to have deep pockets to get started. The minimum amount is just £25 per transaction. Each £1 you add = 1 bond. Unlike the lottery, your bonds keep getting entered into each monthly draw until you decide to withdraw them.
Are they risk free?
NS&I is backed by the government so, in short your money is 100% safe. Every pound you pay in can be taken back out anytime and with no penalty.
Any downsides?
The two big negative points for me are the chance of winning nothing and in the long term, inflation attacking the value of my savings. However, my tax status means that I would lose much of the interest paid in a regular savings account so I’m happy to take this risk!!
Getting your money out
When I requested my money it was sent back to my bank account via a BACS payment. This took around 4 days. You simply need to login to your NS&I account and state how much you want to sell.
Tax free, baby!
Any prizes you win are exempt from tax. Even better, you don’t need to declare them on a tax return either.
Getting a better return elsewhere?
I also own some other investments. The bulk of these are held in a Stocks & Shares ISA and contain some good solid UK dividend paying companies. If I’m honest, the yield on these shares are beating my Premium Bonds by a huge amount!
Also, because of my increased share buying during the 2020/2021 stock market crash, the value of these shares have now risen in value too.
For me, I see my Premium Bonds as a safe place to stash my emergency fund and also dream of eventually winning one of those larger prizes!
Disclaimer
This page is NOT financial advice! Also, please bear in mind that monthly prizes are not guaranteed. So, you will likely not get the same results as me. You may do better or worse.
Cheers,
Lee!