Patrick Jones* will never forget the moment he opened a letter and discovered he had won £100,000 on the premium bonds.
“I thought: this is absolutely bonkers. It must be a hoax,” says Jones, who had invested £15,000 in the bonds.
Five years earlier he had won £5,000 with a £2,000 holding. He couldn’t believe his luck could be that “outrageous”. Even after the prize money arrived in his account, he found it hard to accept that he had actually won a six-figure sum, tax free. “It took a while to sink in. I felt very fortunate, very lucky – and very happy.”
He used the money to take some time off his work as a landscape gardener, go travelling and then retrain as a chartered accountant. “It absolutely changed my life.”
Dianne Heddy also invests in premium bonds. However, she has been waiting a long time to receive a letter such as Jones’s. In 1956, the year the bonds first went on sale, she put all her birthday money – £7 – into the government-backed savings scheme. She was nine years old.
“I’ve never bothered to cash in the bonds but I’ve never won anything,” the 75-year-old says now. “I’ve given up hoping.”
And there are millions of other people who have never won a penny.
Freedom of information requests to National Savings and Investments (NS&I) in 2021 and 2022 revealed that about three-quarters of all premium bond savers have never won a prize.
However, there is some good news for the UK’s 22 million-plus bond holders: as of this month, the prize fund rate – the proportion of the total amount invested paid out in prizes – is the highest it has been for 24 years.
It was recently upped from 4% to 4.65% – its highest level since March 1999.
As a result, the odds of winning with each £1 bond number have improved to 21,000-1 from the previous 22,000-1.
The changes add about £66m to the prize fund for this month.
NS&I has also beefed up the number of higher-value prizes and reduced the number of £25 ones. As a result, the number of £100,000 prizes has risen from 77 in August to 90 this month, while the number of £50,000 prizes has jumped from 154 to 181.
But are premium bonds still worth getting now that interest rates on savings accounts are looking a lot better than they were before? For example, you can now get a one-year fixed-rate account from NS&I paying 6.2%.
Of the almost 100 Guardian readers who shared their experiences with premium bonds, more than a dozen savers who have held bonds for 60 years or more told us that they have yet to see any return on their investment at all.
That is potentially a lot of savings account interest to have missed out on.
Mark Hainge, 66, still has the two original paper bonds that his grandmother and godmother bought for him when he was a few months old. “I have won precisely nothing with them. Perhaps their true value lies in reminding me of the love the two old ladies had for the infant me,” he says.
He looks at a photo of himself as a boy with his tricycle. “I had to save up for months for that tricycle – [the number-generating machine] Ernie could have bought it for me there and then if I’d been lucky,” he says.
However, last month, after he originally spoke to the Guardian, Mark did enjoy a win on the premium bonds – from other bonds that he holds. “Neither of my two original bonds contributed to this, obviously.” He used his winnings to pay for tickets to a music festival.
Another reader, James Looker, 44, has had considerably more luck with the bonds his grandparents gave him, despite not winning any significant prizes.
He and his sister were given £500 worth of premium bonds in 2006, “with the proviso that if one of us won, we would have to share the winnings equally”.
He adds: “Imagine my delight when my sister won £10,000 a few months later and had to give me £5,000. My bonds have won next to nothing, and when they do crop up with the odd £25, my sister tells me to keep the £12.50 I owe her through gritted teeth.”
Missing out on savings account interest is one of the big downsides of opting to put your cash into premium bonds. That does not bother Bilal, though. (He did not want to give his surname.) Over the past three years he has gradually built up a holding of £50,000 in premium bonds.
He likes the fact they are backed by the Treasury, and says he wanted to make a legitimate investment that would not fall in value: “I invested because it was safe. There was a sense I may get lucky. But more than anything, it was the security I wanted.”
His wife, Zara, also holds £50,000 in bonds. But while she has never won more than £100, he won £10,000 in January.
“I told my wife the email was a scam,” he says. “I never thought I’d be that lucky.”
Since then, he and Zara have not stopped celebrating their good fortune. “When my win was confirmed by NS&I, we danced around the house,” he says.
The Guardian reader Gemma Thomas* invested £25,000 from the proceeds of her divorce into premium bonds in 1996. “I didn’t want to invest in anything high-risk or unethical. Premium bonds seemed fairly safe, without me having to do too much research or employ someone else to tell me what to do.”
Fifteen years later, after participating in about 180 prize draws and winning the odd £25 here and there, she won £100,000. “I’ve never had much money. So I was absolutely delighted.”
Despite her good fortune – or perhaps because of it – she has a feeling she will win another big prize in the future, and so continues to invest in premium bonds. “I may be wrong, of course, but I do have that feeling.”
Jones takes a similar attitude: “It’s a numbers game. So if I have any spare cash, that’s where it goes.”
* Some names have been changed
What are the chances of winning?
How do the odds of winning stack up? Are premium bonds a good place to stash your savings?
While there is no doubt that the increase in the prize fund rate is good news for bondholders, it does not mean you will now get a 4.65% return on your money – only that 4.65% of the total amount invested in premium bonds will be paid out in prizes.
These range from £25 to £1m. But since this month there are 1,027,604 £25 prizes and only two £1m prizes, you stand a much higher chance of winning £25 than £1m.
The actuarial consultancy OAC is broadly positive about the changes. It says that while the “rate of return” for the average premium bond saver has increased by 16% this month, the odds of winning a prize have only risen by 5%. It says this is because of a big shift from smaller £25 prizes to larger £50 and £100 ones.
“The odds on winning a £25 prize were 71,000-1 but have now risen to 118,000-1 – a decrease of 40% in probability. Contrastingly, the odds on [winning] £50 or £100 have jumped by 25%, moving from 32,000-1 to 26,000-1,” says Greig Bingham at the consultancy.
The fact that premium bond prizes are tax free is one of the most important factors to consider when deciding whether to invest, says Anna Bowes, the co-founder of the website Savings Champion.
“For higher-rate taxpayers, additional rate taxpayers and cash-rich savers who are already utilising their personal savings allowance, premium bonds are still a great place to park some money,” she says.
She compares premium bonds to saving in an easy access savings account, because you can cash in premium bonds at any time without penalty.
Higher-rate taxpayers who have already earned £500 in interest on their savings and used up their Isa allowance would need to find an easy access account paying 7.75% gross to earn the equivalent of a 4.65% return, tax free. “You’re not going to get that,” Bowes says. At the time of writing, the very top-paying easy access savings accounts were offering about 4.94%.
On the other hand, you may not earn 4.65%, or even anything at all, with your premium bonds, while you would have been certain to earn interest with a straightforward savings account.
When interest rates were lower, the amount of interest you were risking by investing your savings in premium bonds (rather than a top easy access savings account) was smaller than it is now.
“If you put £50,000 in now, you could miss out on up to £2,470 in interest,” Bowes says.
