Millions of Premium Bond Holders Risk Losing Money Due to Inflation and Missed Opportunities

Approximately 62% of National Savings and Investments (NS&I) Premium Bond holders, totaling 14.3 million individuals, have never won a prize, according to a Freedom of Information request by investment platform AJ Bell. The average saver in this group holds £128.91 in Premium Bonds, with these funds having been held for just over eight years. This lack of prize winnings means these savings are subject to a double blow: erosion of purchasing power due to inflation and missed opportunities for growth available in other savings and investment vehicles.

Unlike traditional savings accounts, Premium Bonds do not offer regular interest payments. Instead, each £1 bond is entered into a monthly prize draw for tax-free prizes ranging from £25 to £1 million. While savers can withdraw their original stake at any time, the absence of guaranteed returns means that those who do not win are effectively losing money in real terms. Currently, the prize fund payout is around 3.8% for every £100 held, with two £1 million prizes and smaller awards distributed monthly. The odds of winning any prize with a single bond are 22,000 to one.

Charlene Young of AJ Bell highlighted that this situation leads to a loss of spending power over time. For the average non-winning holder with £128.91, the purchasing power of that sum has decreased by £64.84 over the past eight years due to a 50.3% rise in inflation between 2018 and February of the current year. To maintain its 2018 purchasing power, that £128.91 would need to be worth £193.75 today. This decline impacts everyday purchases, with the sum now buying fewer litres of petrol or fewer restaurant meals compared to eight years ago.

Beyond the loss in purchasing power, these non-winning funds have also missed out on potential growth. If the average £128.91 had been placed in a standard savings account over the same period, it would have grown to approximately £153.35, a 19% increase. However, a more substantial return could have been achieved through investment. Had this amount been invested in a global tracker fund, which saw a 142% rise over the 8.1-year period, it would now be worth £312.12. For savers holding larger sums, such as £1,000 in non-winning Premium Bonds, an investment in a global tracker fund could have resulted in a current value of £2,420, significantly outperforming the stagnant value in Premium Bonds.

The allure of the £1 million jackpot remains a primary reason for many savers to continue holding Premium Bonds, despite the low odds. The chance of winning the top prize with a single £1 bond is one in 68.4 billion. However, there are instances of smaller holdings winning significant amounts, such as a £100 holding winning £1 million in March of the previous year, which was the smallest amount to win the jackpot in the past decade. The all-time record for the smallest winning holding was £17 in July 2004. Young advises that savers who have held money in Premium Bonds for extended periods should assess their winnings and consider whether their money could achieve better returns and keep pace with inflation elsewhere.