Premium Bonds Cost Savers Millions as Inflation Erodes Value

A significant portion of Premium Bond holders are experiencing a loss in the real value of their savings due to inflation and missed investment opportunities, a report suggests. Approximately 14.3 million savers, or 62 percent of Premium Bond holders, have never won a prize, according to a Freedom of Information request by investment platform AJ Bell.

These savers, on average, hold £128.91 in Premium Bonds, with the funds held for over eight years. This stagnant money is subject to the erosive effects of inflation, diminishing its purchasing power over time. For the average non-winner holding £128.91 for the past 8.1 years, the loss in real terms is estimated at £64.84. This is because prices have increased by 50.3 percent during that period. To maintain its original purchasing power from 2018, that £128.91 holding would now need to be worth £193.75.

The decline in spending power can be illustrated by comparing what the average holding could purchase then versus now. Eight years ago, £128.91 could buy approximately 104 liters of petrol; today, it buys only about 81 liters. Similarly, meals at restaurants and weekly grocery shops for a family of four have become significantly more expensive, requiring a larger outlay than the same amount of money would have in 2018.

Missed Growth Opportunities

Beyond the loss in spending power, these non-winning Premium Bonds have also forgone the opportunity for their funds to grow. If the average £128.91 had been placed in a standard savings account, it would have grown to approximately £153.35, a rise of about 19 percent. This growth significantly lags behind the 50.3 percent inflation rate over the same period.

An investment in the stock market, specifically a global tracker fund, could have yielded more substantial returns. Over the same 8.1-year timeframe, such an investment could have increased in value by 142 percent, turning the initial £128.91 into £312.12. For those holding larger sums, the disparity is even greater. A £1,000 holding in non-winning Premium Bonds, if invested in a global tracker fund, could have grown to £2,420.

The Allure of the Jackpot

Despite these figures, the dream of winning the £1 million jackpot remains a primary reason for savers to hold onto their Premium Bonds. While the odds are extremely low—one in 68.4 billion for a single £1 holding in a recent draw—occasional windfalls do occur. In March of the previous year, a winner in Cleveland secured the £1 million prize with only £100 in Premium Bonds, a testament to the smallest holding to win the jackpot in over a decade. The all-time record for the smallest winning holding was £17 in July 2004.

Financial analysts suggest that savers who have held money in Premium Bonds for extended periods should evaluate their returns, compare them against inflation, and consider alternative investment options that could offer better growth potential.