I've not been a fan of Premium Bonds for some time. But hardened fans of ERNIE will be cheered by NS&I's announcement that it is increasing the Premium Bonds prize fund rate to 1.5 per cent from the October 2009 prize draw onwards. The odds of winning are also improving from 36,000 to 1 to 24,000 to 1, estimated to create an extra 500,000 Premium Bond prized to be distributed in the monthly draw.
This means that the odds of winning prizes will no longer the worst ever, which they were under the previous Premium Bond prize fund rate of 1 per cent. That was introduced on 1 April 2009, along with a new lowest prize of £25 and the removal of one of the two £1m jackpots.
But before you get carried away, note that although the rate is rising in October, NS&I are not going to reinstate the second £1m jackpot, or remove the £25 prizes. So once again, here are my reasons why I'm not going to get excited about Premium Bonds.
The only context in which Premium bonds work is gambling. You may win the £1m jackpot - or you may be one of the 96 per cent of the monthly prize winners who will win just £25.
Even if you had average luck and did win the tax-free £1.50 a year for every £100 held in Premium Bonds, it's only the equivalent of 2.5 per cent interest for a higher-rate taxpayer. According to Moneyfacts.co.uk, you can get up to 2.8 per cent on an instant access account and 3.85 per cent if you are willing to tie your money up for a year.
If you don't win, you won't lose your capital in the process. But you could lose out to inflation. Premium Bonds should still be seen as a bit of harmless fun for those who don't need a return on their investment.
The effect of changes in the Premium Bond prize fund rate October 2009 (estimate)
| Value of prize(s) | Number of prizes |
|---|---|
| £1,000,000 | 1 |
| £100,000 | 4 |
| £50,000 | 9 |
| £25,000 | 18 |
| £10,000 | 42 |
| £5,000 | 86 |
| £1,000 | 1,048 |
| £500 | 3,144 |
| £100 | 30,840 |
| £50 | 30,840 |
| £25 | 1,683,024 |
Source: NS&I
