Martin Lewis has issued a warning over Premium Bonds as he laid out the probability of winning money through the savings accounts on his ITV show.
The most popular type of savings account in the UK, Premium Bonds work by determining how much interest you receive on the savings in your account via a monthly prize draw, with the amount you can win ranging from £25 to £1 million each month. The life-changing prize amounts make Premium Bonds a popular choice, with 21 million people in the UK using them - but Martin explained that anyone looking to set up a savings account should not necessarily be lured in by the big numbers.
During the latest episode of The Martin Lewis Money Show, the MoneySavingExpert founder explained the probability of winning in the monthly prize draw. "The prize fund rate is currently 2.2% - what that means is for every £100 that's in Premium Bonds, it will pay out £2.20," he said.
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But the financial expert went on to explain that because the smallest prize amount you can win is £25, it's almost guaranteed that those with savings of up to £1000 in Premium Bonds "will win nothing". Each £1 placed into Premium Bonds has an equal chance of getting a prize, so the more savings you have, the more chance you have of winning.
Martin emphasised that Premium Bonds won't pay out much more on average than the interest on easy access or fixed rate savings accounts. Admitting that it is a "psychologically genius system", the expert told the audience: "In honest terms of returns for most people with typical luck, you will do better in a top savings account. If you want the thrill, enjoy it… but I’m a numbers man, not a thrills man."
"When we compare Premium Bonds against simple top standard savings, you're actually more likely to get more for your money with savings than Premium Bonds if you have average luck," the MoneySavingExpert website reads. "Premium Bonds can beat normal easy-access savings, but you'll need to have above average luck to ensure that comes true – and for most, guaranteed interest from savings is the better option."
The website advises people to use its calculator to work out the odds of them winning money. "Many people often think: 'I'm likely to get about 2.2% and there's a small chance of winning a million'. But the main point is that this isn't correct," Martin warned on the website.
"You're actually likely to get quite a lot less than 2.2%, and there's a negligible chance of winning a million. If you know and you're OK with this, then investing in Premium Bonds isn't a bad plan."
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