Martin Lewis addressed the issue of premium bonds on tonight's (Tuesday) ITV programme, The Martin Lewis Money Show: LIVE. According to the money saving expert, 21 million savers in the UK have more £119 billion in them.
He took the figures of winnings from the premium bonds, the savings plan from NS&I, and compared the rates with savings accounts to see which was the better deal for your money. And it's fair to say the results surprised people.
Martin explained: "Premium Bonds is a savings account, but instead of getting interest, you get money from a prize draw that comes out each month. Each £1 bond is entered into a draw and has exactly the same chance."
The smallest premium bond prize is £25, but you aren't guaranteed that.
"Once you start to own around 1,500 [bonds], you're going to win around 1.7% or 1.8%... It maxes out at £50,000, so with £50,000 of premium bonds with typical luck you would win a grand, which is 2%.
"The top easy access account is 2.5%, so with typical luck, premium bonds win less than easy access. You win a lot less than fixed[rate savings accounts], and most people with premium bonds don't do it for the short term, they do it for the long term."
So who do premium bonds actually work for? Martin says there's a cohort of savers who could benefit from it.
"Premium bonds are tax free, so if you're paying tax on your savings and you've used up your fixed rate cash ISAs and you're a higher rate tax payer, premium bonds can be a good bet. But on typical luck, most people on premium bonds will win less than if they're just putting it in the top easy access saving account."
He did, however, say that people enjoy the thrill of owning premium bonds.
"You could win the big one, but if you get the £25 each month and you feel like you've won. But if you put that money in a savings account, you get that interest each month anyway, and it's usually more."
Martin's verdict on premium bonds was clear: "Psychologically genius system but in honest terms of returns for most people with typical luck, you will do better in a top savings account."
The Martin Lewis Money Show: LIVE is on Tuesdays at 8pm on ITV or you can catch up on ITV Hub
