Key Highlights
- Martin Lewis advises most savers to consider traditional savings accounts over NS&I Premium Bonds.
- The current yield on NS&I Premium Bonds is 3.6%, which may not be competitive with top savings products.
- NS&I’s latest winning numbers were announced during the podcast, adding context to Lewis’ advice.
- Premium Bonds offer a tax-free environment and can still provide excitement for those who enjoy the thrill of potentially winning big prizes.
The Debate: Savings Accounts vs. NS&I Premium Bonds
In an episode of his BBC podcast, financial expert Martin Lewis addressed a listener’s query regarding their £60,000 investment in NS&I Premium Bonds. The caller, Josie, was seeking advice on whether the time had come to consider alternative savings options.
Understanding the Odds
Martin Lewis began by explaining that the odds of success for Premium Bonds are not as straightforward as they might seem. He noted that while the prize fund rate is currently 3.6%, this does not translate directly into a return on investment. For instance, £100 in Premium Bonds would likely result in zero winnings most of the time due to the smallest prize being £25.
He further elaborated on the concept of “median average,” which is crucial for understanding typical luck with Premium Bonds. According to Lewis, those with typical luck can expect to win less than the mean average 3.6% return, and their actual winnings are largely dependent on the amount they have invested.
Comparing Returns
Martin Lewis highlighted that even with £60,000 in Premium Bonds, the expected return is only around 3.2-3.3%. This figure pales in comparison to leading savings products available in the market, which are paying approximately 4.5%.
He stated, “The best easy access savings accounts on the market are paying about 4.5%, and the top fixes on the market are in the 4.4 to 4.5% type range.” This comparison underscores why traditional savings accounts might be a better choice for most savers.
Tax Considerations
However, Lewis acknowledged that NS&I Premium Bonds do offer certain advantages. Notably, they are tax-free, which can be beneficial for those who have already filled their personal savings allowance or cash ISA allowances. He explained that if you’re a higher rate taxpayer and your savings interest is taxed at 40%, then the after-tax returns from Premium Bonds start to look more attractive.
He concluded by advising people to invest in high-yield accounts, with a caveat for those who enjoy the thrill of potentially winning big: “If you really want to talk about the thrill of winning, then it’s probably far more sensible and effective for those people who don’t pay tax on savings and who aren’t higher rate taxpayers, to go and put their money in top savings and then take a couple of quid out and put it in the National Lottery and then you get your thrill of winning anyway but you get more return on the underlying savings.”
Conclusion
The advice from Martin Lewis underscores the importance of considering multiple factors when deciding where to invest savings. While NS&I Premium Bonds offer excitement and a tax-free environment, traditional savings accounts currently provide higher returns for most savers.
To listen to the full podcast episode or read more about financial advice, visit the original source.
