Say yes to Ernie: Premium Bonds are back in style

The NS&I strategies are no longer non-profitable, according to Jessie Hewitson.


Savers suddenly transfer their money from their ordinary accounts to Premium Bonds that were formerly deemed not the best investment option.

As it’s shown on the website of Moneyfacts, the disputes about the reputation of Premium Bonds that had their annual percentage growth lowered from 1.35% to 1.25% seem useless now. The ordinary prizes are 0.45%-0.78%, which makes a significant change.

So do Premium Bonds keep the label of a bad investment option? Surely no, according to Patrick Connolly, an adviser at the financial planners’ company Chase de Vere.  He says that 1.25% is pretty competitive now, considering the giant fall of ordinary savings annual prizes rate. People often give up the stability with little reward and go to catch chances with the bigger one.

Martin Lewis, the man who launched and who, earlier this year, called for the British to end their love affair with Premium Bonds, agrees that the situation has changed.

“In the short term they are a good deal, particularly for higher-rate taxpayers who have used their Isa allowance,” he says. “ It’s important to remember, however, that while the prize rate is 1.25 per cent, it is not the same as an interest rate: the typical rate you are going to win is unlikely to be this high, although of course some people win more. And the less money you have in Premium Bonds, the less you are likely to win.”

Times Money has, along with Chase de Vere, put Premium Bonds to the test. We examined the prize money won by Emma Pickering, a PR officer based in London, who has had £40,000 invested in Premium Bonds since September 2014. We compared this with what she might have received had the money been in a typical savings account over the same period.

Emma won a total of £1,150 with her bonds in just under two years — there has been only one month where she didn’t receive a warrant (similar to a cheque).

The total holding value of Premium Bonds is £64 billionNS&I

On average she wins £25 a month, the most she has won is £150 and five other times she has received warrants for in between these amounts.

This represents a total return of 2.87 per cent, or a compound annual return of 0.95 per cent. A savings account, meanwhile, which might have paid 1 per cent a year over the past three years, would have given a total of £1,212.04, although there would have been tax to pay.

“Most people would have paid tax on their savings accounts at 20 per cent for basic-rate taxpayers and 40 per cent for higher-rate taxpayers, so the extra made in the savings account could have been cancelled out by tax,” says Mr Connolly. “There is also the possibility of winning more with Premium Bonds.”

“When I first invested in Premium Bonds,” Ms Pickering says, “I had just sold my house and wasn’t sure what to do with the money. I initially put my money into an Isa and other savings accounts as well as an Isa, but I didn’t want my money spread into different accounts; I wanted it in one place.

“I don’t like high risk, so for me the important bit was that it is government-backed and safe — and the bonus is it’s fun. I can get to my money quickly, there are no fees, the website is easy to use and the staff are helpful if you need to speak to anyone.

“We don’t use them as the first port of call, but we do use them for people who already have other savings and investments in place.,” said Mr Connolly. “The only times we don’t use them is if someone needs certainty of return, or an income. Even if savings rates increase, or were cut again, we would still recommend our clients using them”.

How long they remain a good deal is up for debate. “My strong suspicion is that it will not be long before NS&I drops its rate again,” says Mr Lewis. “This means that we are in a short-term hiatus — and should the rate drop again they will stop looking so competitive.”

A safe gamble

● The total Premium Bonds holding value is £64 billion. The total number of Premium Bond holdings (customers) is 23 million.

● Premium Bonds were launched by Harold Macmillan on April 17 1956.

● The odds of winning per £1 bond are 30,000-1. The biggest prize you can win is £1 million. In 1957 it was £1,000.

● The minimum amount you can invest is £100; it was increased last year from £40,000 to £50,000.

● You have to be over 16 years old to invest, and winnings are tax-free. They can be bought as gifts for children, grandchildren and great-grandchildren. It is not possible to buy them for friends or other relations such as nieces or nephews.

● There have been four generations of Ernie, the electronic random number indicator equipment that has been selecting the winning numbers since 1956. The original Ernie machine was invented by the Cold War codebreakers at Bletchley Park.

● It is complicated to accurately calculate the odds of winning because of the number of variations involved.