Premium bonds: Expert explains the ‘Ernie’ machine
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At a time when interest rates are low, keeping pace with inflation will be a huge concern for savers. There’s no guarantee of a win with Premium Bonds , meaning NS&I states Premium Bonds may not be quite right for people who are concerned about inflation and/or who are looking for guaranteed returns or a regular income.
The current annual prize fund rate offered by NS&I is one percent.
It means the odds of winning per £1 Bond number stand at 34,500 to one.
There is a minimum holding amount of £25.
At the other end of the scale, the maximum amount of Premium Bonds a person can hold is £50,000.
Premium Bonds: Inflation can mean there’s a ‘significant’ impact on savings (Image: GETTY)
Prizes range from £25 up to £1million – with there usually being two jackpot winners.
“If you're lucky, your Premium Bonds could earn you far more than a savings account or investments if you won one of the larger prizes,” Paul Campion, financial planner at Succession Wealth, said.
“However, there's a chance you'll receive nothing at all.”
Speaking to Express.co.uk recently, the financial planner discussed what the impact of inflation can mean for Premium Bonds holders.
“One of the reasons that Premium Bonds are attractive is that your deposits are guaranteed,” he said.
“When you decide to withdraw your money, you'll receive the same amount you put in, but once you factor in inflation, your savings will be lower in value in real terms.
“This is because the cost of living rises each year and, unless your savings increase by the same amount, your money buys less.
“In the short term, this effect is minimal.
Premium Bonds are a way of saving tax-free but they won’t suit everyone (Image: GETTY)
“However, look at the impact of long-term inflation and it can be significant.
“To keep pace with inflation, your Premium Bonds would consistently need to win the prize draw, but thanks to recent changes this isn't as likely as it once was.
“Previously, the prize rate for Premium Bonds was 1.4 percent, this means each £1 bond had a one in 24,500 chance of winning a prize.
“The change meant the prize rate was slashed to one percent, resulting in odds of one in 34,500 per bond.
“That means over one million fewer prizes are now given out each month, and there's a greater chance that your Premium Bonds will earn nothing at all, leaving your savings at the mercy of inflation.”
Premium Bonds prize draw results are announced at the start of the month.
It is possible to check whether a person has won via the NS&I prize checker tool on the NS&I website.
The prize checker app also displays the results, and people can also check whether they’ve won a prize through an Amazon Alexa-enabled device.
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