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65 years of premium bonds – how to make more of your savings

We take a look at how NS&I has shaped our savings, and how we can try to maximise our future returns.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

November marks 65 years since the launch of premium bonds from NS&I, and the memorable moment when Shadow Chancellor, Harold Wilson dismissed them as a “squalid raffle”.

This didn’t put savers off though. £5 million worth of bonds were bought on the first day alone – that’s over £130 million in today’s money.

We take a look at how NS&I has shaped our savings, and how we can try to maximise our future returns.

Although this article can provide you with helpful tips, it isn’t personal advice. If you’re not sure if something is right for you, ask for financial advice.

Shaping the future of savings

Over the years, premium bonds have become something of a national treasure. Loved by over 21 million savers, and in the past 18 months they’ve become more popular.

In the draw before the first lockdown in March 2020, there was just over £86 billion in the bonds, and by October 2021, there was over £113 billion – that’s up almost a third. But with the odds lengthening and prizes cut, it’s worth considering how to make them work for you.

When we asked people to name the biggest attraction of premium bonds, the most popular answer was the chance to win a big prize.

But there’s a price to being in it for the prize.

Each bond now has a one in 34,500 chance of winning any kind of prize at all and the chance of banking one of the two monthly £1 million prizes is around one in 57 billion for every £1 bond held, per monthly draw.

Winning small matters too

But it’s not just your chances of winning big you need to think about.

It’s easy to look at the prize rate of 1% and assume you’ll get something like this as a return on your savings. But, in an average year, someone with £1,000 in bonds would most likely earn nothing. And you don’t earn any interest on money in premium bonds, so if you’re planning to hold large sums for longer periods, your money is likely to lose spending power after inflation.

That doesn’t mean there’s no place for premium bonds. It just makes sense to consider your savings as a portfolio, in the same way you would with your investments, and find the right place for these bonds within it.

How to build a savings portfolio

The first step to building your portfolio is having easy access savings that you can get to if there’s an emergency.

If you’re in work, we usually suggest having at least three to six months’ worth of essential expenses on hand. This grows to one to three years in retirement as it’s harder to replace income at this stage.

Some people consider premium bonds a useful place for your emergency fund because you can access the money at short notice. But, during the pandemic, the sheer number of people moving money in and out of NS&I tested its systems to the limits. And while it’s committed to improvements, you should consider how you’d be impacted by any delays.

If your imminent expenses include relatively large sums you’ll hold for relatively short periods, you might be tempted to put them into premium bonds for a chance of winning a big prize.

This can include the cash you need to pay your tax bill, or money set aside for a house deposit. But you’re not going to get any interest and your chances of winning are pretty slim.

You might be better off keeping this money in an easy-access account instead – this way at least you’ll be getting a more reliable return. And don’t forget premium bonds only get entered into the prize draw after they’ve been held for a full month, making them less suitable for short holding periods.

It can be hard to know where to start when it comes to saving cash. Especially if you’re worried about the impact of inflation. But once you have more saved than you need to cover your emergency fund, you can tie portions of your savings up in fixed rate products, and get a higher rate of interest in return. You don’t need to tie up this cash for long periods, even six months could make a difference to your returns. But be aware, you can’t usually access your money in fixed-term products until they end, so make sure the rate and term is right for you.

Having lots of accounts can make it difficult to keep track of your savings and investments. That’s where a cash savings platform, like Active Savings, can help. You can put money into a variety of savings products with different banks more easily, but you can also keep an eye on everything in one place.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

Find out more about how you can make the most of your cash savings and open an account.

Explore Active savings

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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