Four alternatives to premium bonds – we reveal how to win big on your savings
Around 21million people in the UK have put their money into premium bonds, but are they all they are cracked up to be and what are the other options?
PREMIUM BONDS are the nation's favourite way to save with a staggering £72billion being held in these luck of the draw accounts.
But is it worth you keeping your bonds and hoping for a payout or should you think about moving your cash elsewhere?
Here we explain what premium bonds are and what alternatives are out there:
What are premium bonds?
Premium bonds are just like normal savings accounts that let you take money in and out whenever you want - with one key difference.
Instead of interest being paid every month, the money you put into the account works as tickets for a monthly prize draw that could earn you anywhere between £25 and £1million.
You get a ticket (bond) for every £1 in the account and each bond you have increases your chances of winning.
You have to be over 16 to buy premium bonds and you have to have a minimum of £100 in your account to be entered for the draw.
The scheme is run by the Treasury-backed NS&I, which lends your money to the government.
Are premium bonds worth investing in?
If you are hoping to win the top prize you probably need to know that the odds of winning £1million are 1 in 35,926,766,878.
So I wouldn't count on a payday anytime soon.
Even winning the lowest prize of £25 is a 1 in 24,500 chance but they could still be worth a look.
Andrew Haggar, personal finance expert from Moneycomms.co.uk says: "Premium Bonds are a decent option in today's depressed savings market where you'll be hard pushed to earn 1.30 per cent on easy access savings.
What are the options that don't include prize draws?
TOM Adams, head of research at savings advice site, Savingschampion.co.uk said:
“Ultimately savers have a clear, but not necessarily easy, choice – earn interest on their savings or take the chance of potentially high rewards – or of course none at all!"
"For those looking for alternatives with easy access, you can currently get 1.30 per cent on both standard accounts (RCI Bank’s Freedom Savings Account) and cash ISAs (Nationwide’s Single Access ISA)."
"For higher rates, you can choose a fixed rate account, in exchange for being tied in for the term. Fixed Rate Bonds range from 1.85 per cent for one year (Wyelands Bank and United Trust Bank) through to 2.65 per cent for five years (Vanquis Bank, United Bank UK and Secure Trust Bank)."
"For a fixed rate cash ISA, rates currently range from 1.48 per cent for one year (Kent Reliance) to 2.65 per cent for five years (United Bank UK)."
"So, there are alternatives that pay standard interest in contrast to the variable returns (if any) available from Premium Bonds – but that is not to say they are not worth considering as part of an overall savings strategy. There are a number of smaller prizes on offer and even the possibility of scooping the big prize would be a compelling draw for many”.
"Many big banks are paying below 0.50 per cent so it's not that you're losing out on a fortune in terms of lost interest if you try your luck with Premium Bonds.
"The prize pot is not as high as it once was (equivalent to 1.40 per cent interest at present) but it's 100 per cent safe, there's always that chance that you'll pick up the odd £25 from time to time and if you're very lucky something with a few more zeros on the end."
"Unlike spending money on the National lottery you're always guaranteed to get your stake back so with banks and building societies paying such poor interest rates Premium Bonds aren't a bad home for some of your nest egg."
If you are interested in premium bonds, here is our guide on how to get started.
So what are the alternatives?
Much closer to a traditional premium bond, this prize draw gives out monthly cash prizes to Halifax and Bank of Scotland Customers.
The top prize in the draw is normally £100,000, which is given to three lucky winners.
You have to have an account with either Halifax or Bank of Scotland and you need £5,000 in that account for a whole calendar month before each draw.
There is also no way of improving your odds so it is just one entry per customer.
Halifax has not shared the exact odds of winning but there are around 1,600 prizes given away every month.
This account requires you to deposit £10,000 into the account before you are even entered into a prize draw.
If you do front up the cash to enter, there is a monthly prize draw with a top prize of £50,000.
Another two more entrants will win £10,000 and 10 more people will win £1,000.
Though the cost for entering is much higher than the other alternatives the chances of winning are also a lot higher.
You have a 1 in 64 chance of winning if you enter.
But once you have put your £10,000 into the account you cannot withdraw unless you close the account which takes 35 days.
What if I want a guaranteed win?
There are also some accounts without a prize draw that could make sense if you are looking to get some guaranteed interest.
These accounts come with much larger interest rates than a regular savings account, but prepare to lock your money away for a long time to get the bonuses.
Online only bank Tandem offer a two year fixed saver with an interest rate of 2.25 per cent.
You can only deposit money into the account once and after that you can't touch it for two years.
If you put away £1,000 into the account and waited for the full term you would get £22.50 in interest.
Using we can figure out that if you put the same amount of money into a premium bond for two years you are on average going to earn just £25.
Of course there is a chance you could win big on the premium bonds but if you are willing to leave your money in one place for two years a bigger payout is guaranteed.
If you are really willing to invest your time into one bank account you could be in for a big payoff.
United Bank UK offer a five year fixed deposit account with a 1.7 per cent interest rate.
Similar to the Tandem account, once your money is in the account it is locked away for five years.
More on money
If you put the minimum deposit of £2,000 into the account for the five years you would earn £177.30 in interest.
Whereas if we use the Moneysavingexpert premium bond calculator on the same amount of money with the same amount of time you are only likely to win £100 with a premium bond.
So once again it is all about weighing up the security of a fixed deposit account vs the chance to win big on a premium bond.
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