Martin Lewis Premium Bonds alert as 'most would earn more' with this account

Martin Lewis has issued a warning to Premium Bonds savers as "most people would earn more" by switching to a different savings option. The financial expert, founder of Money Saving Expert, appeared on and fielded a question from someone who wanted to know how to purchase the Bonds.

Mr Lewis directed them to provider NS&I's website where they could invest in the Bonds, but he urged the viewer to first consider if the Bonds are the right choice for them. He warned: "I am only generally a fan of Premium Bonds for people who have near the maximum £50,000 and people who already have cash ISAs and pay tax on their savings. In other words, higher earners with large amounts of money."

Premium Bonds go into a monthly prize draw rather than the value of your holdings increasing in line with an interest rate. The question of the value of the savings vehicle has been raised recently as the prize fund rate is to drop from the December draw, down from the current 4.4 percent to 4.15 percent.

READ MORE:

READ MORE:

With typical luck, you need at least £10,000 invested to stand a good chance of winning a prize. Each £1 Bond has an equal chance of being paired with a prize, with top prizes including the jackpot £1million, £100,000 and £50,000, so the best way to boost your chances of winning is to hold more Bonds, up to the £50,000 holding limit.

The financial journalist further warned that if you have relatively low savings, you may be better off putting your cash elsewhere. He explained: "If you're saving a couple of grand, the interest rate is currently 4.4 percent dropping to 4.15 percent in December, but with average luck you actually earn less than the interest rate that is published, because that's called the prize rate.

"Most people would earn more putting their money in easy access savings or fixed rates at the top rate, and then you're guaranteed to get interest each month. With Premium Bonds, it's the luck of the draw." Providing some more specific examples, he said: "If you've got £30,000, £40,000, £50,000, you've used up your cash ISA and you're paying tax on savings interest, it can be a good deal.

"If you've got £500, £1,000, £2,000, and you don't pay tax on savings interest, with typical luck you'd do better elsewhere." Premium Bonds savers often arrange their account so whenever they win a prize, the funds are reinvested in buying more Bonds, increasing their chances of winning again.

The odds of each £1 Bond winning stand at 21,000 to one. This will drop to 22,000 to one when the prize fund rate drops in December. The prize draw takes place at the start of each month.

If you want to buy Premium Bonds, each investment must be at least £25. You can purchase them online using the firm's secure online system.

Please have your debit card details at the ready, bosses say. You can also buy in the post, by phone or by transfer or standing order.

Do bear in mind the rule on interest, however. The Premium Bonds states: "Premium Bonds don’t earn interest. Instead, there’s an annual prize fund rate that funds a monthly prize draw for tax-free prizes. Remember that inflation can reduce the true value of your money over time.

"The prize fund rate is variable so it can change at any time. For example, before new Bonds become eligible for their first draw."