Premium bonds are the most popular product from NS&I (National Savings & Investments) with around 22.5 million people holding the accounts, but new figures show most of these holders have never won a single prize. 

A Freedom of Information request* obtained by AJ Bell reveals two-thirds of Premium Bond holders, equivalent to just under 14.4 million people, have never won anything.

It paints a disappointing picture for hopeful bondholders who could have otherwise have stuck their money elsewhere for a more reliable and sometimes guaranteed return.

The figures also show that 5.3 million Premium Bond holders won a prize between June 2023 and May 2024, with 80% of those winners winning more than once during that period. However, the clincher is in order to have a better chance of winning you have to have much bigger-than-average holding. 

There is a whopping £126 billion sat in Premium Bonds, with the average overall holding coming in at £5,185. However, if we drill down into the 5.3 million Premium Bond holders who won in the past year their average holding sits at £23,047.

Over the past 12 months the average holding of someone not winning is £175, showing that those with very small balances are unlikely to strike it lucky.

Moreover, while the average overall holding of Premium Bond holders sits at a modest £5,185, given there’s a pretty decent chance that amount will not win a prize, savers might be better off considering other options with their cash.

For example, if they had taken more risk and invested the money instead, putting £5,185 in the Fidelity Index World global tracker fund 10 years ago, they’d be sitting on a pot worth £16,689 today**.

Of course, the lure of Premium Bonds is you might win the big £1 million prize but these figures show it’s very unlikely if you only have a small amount saved in the bonds.

That said, there are a few groups for whom Premium Bonds may be an attractive option. The first is those with large savings who are higher-or additional-rate taxpayers.

Premium Bond prizes are tax-free, but since the introduction of the Personal Savings Allowance most people didn’t pay tax on their savings income anyway.

The allowance means basic-rate taxpayers can earn £1,000 in interest on their savings before they pay tax, while higher-rate taxpayers can earn £500. As interest rates have risen, more people are starting to start to hit this allowance.

On top of that, anyone who is an additional-rate taxpayer gets no savings allowance so will pay 45% tax on any of their savings income. For these highest earners, or those who have already breached their allowance, the tax-free nature of Premium Bond becomes far more attractive. 

An alternative for these savers is a cash ISA account where your money will be protected from tax and your interest rate return is guaranteed, but if someone has already maxed out their £20,000 ISA allowance then Premium Bonds are a good second option.

The next group Premium Bonds will appeal to is gamblers who want the chance to win the big prize. If the savings rates on standard accounts don’t excite you, you can gamble on winning one of the top Premium Bond prizes – after all, someone has to win. However, anyone in this camp needs to be aware they could win nothing and therefore get zero return on their money.   

The final group is savers who are very risk-averse. A big part of the appeal of Premium Bonds is they are backed by the government, so they are seen as the safest-of-safe places to keep your money.

However, we’re all protected by the Financial Services Compensation Scheme, which covers up to £85,000 of money per person per financial institution. This means your money is theoretically as safe in any other bank with FSCS protection as it is with Premium Bonds.   

Still, because NS&I is government-run, technically it can’t go bust, whereas a bank could go bust and then you would have to reclaim your money through the compensation scheme. It’s a marginal difference but some people just feel safer with their savings being with the Government.

*Based on data obtained by AJ Bell from the NS&I via a Freedom of Information request, accurate as at 23 May 2023. The number of current holders who have not won a prize is based on data from February 1994 onwards and includes new holders who were not eligible as their Bonds were not beyond one month purchased.

**Based on FE data. Doesn’t take into account platform fees.

Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Laura Suter) and the editor (Ian Conway) own shares in AJ Bell.

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