Premium Bonds are an investment product supported by the NS&I in which investors are entered into a monthly prize draw to win a jackpot. The jackpot is famous for turning regular savers into millionaires overnight. However, this fantastic prize has lost significant value over the past few years.
Here’s how inflation has slashed the Premium Bonds jackpot over time and whether now is a good time to invest in the savings account.
Has inflation cut the Premium Bonds jackpot?
The first Premium Bonds million-pound jackpot was won in 1994. Since that time, the cost of living in the UK has doubled as a result of inflation. Therefore, £1 million in 1994 is only worth around £500,000 now.
The Premium Bonds jackpot has not risen with inflation. If it had, the jackpot would now be £2 million, which is worth the same as £1 million was back in the 90s! As a result, it could be argued that the Premium Bonds jackpot is only worth 50% of its original value.
There are currently over 21 million Premium Bonds accounts held in the UK. However, with inflation continuing to rise, are Premium Bonds still a good investment in 2022?
Should you open a Premium Bonds account in 2022?
Premium Bonds savings accounts work differently from regular savings accounts. Instead of earning interest on your savings, account holders are entered into a monthly prize draw. As a result, account holders are given the chance to win between £25 and £1 million tax-free!
The jackpot prize was created in 1994 when inflation was significantly lower. Due to this, £1 million isn’t as valuable as it was when the savings account was created. However, lucky winners could still win enough money to buy a house in the UK!
Nonetheless, only one account holder will win a cash prize each month. For those who don’t win, the value of your savings will remain the same. Unlike other savings accounts, Premium Bond savings do not earn interest or dividends. Therefore, if you’re looking to increase the value of your savings steadily each month, Premium Bonds may not be the best option for you.
However, those who do choose to invest have the chance of winning life-saving money!
What other savings account options are there?
If you would prefer to gradually increase the value of your savings over time, it may be worth considering other savings account options. While a Premium Bond account could reward you with a lump sum of extra cash, high-interest savings accounts are a guaranteed way to build wealth for the future.
Here are some savings accounts that offer excellent interest rates that you could consider for your savings.
1. M&S Bank Monthly Saver
The M&S Monthly Saver offers a competitive 2.75% interest rate. Furthermore, you can open an account for as little as £25! The account offers easy access to savings, making it a great option for short-term savings.
2. Paragon 3-year fixed-rate bond
If you are able to stash your savings away for three years, the Paragon 3-year fixed-rate bond could be an excellent option. This savings account offers a 1.55% interest rate and you can deposit up to £1 million! The minimum deposit to open an account is £1,000.
3. HSBC Regular savings account
The HSBC Regular Savings account is a great account for anyone who is able to make monthly contributions. The account has a 1% interest rate and allows users to save between £25 and £250 each month. You can hold up to £3,000 in the account and can withdraw your money after 12 months.
You can find more excellent savings accounts in our list of top-rated savings accounts for 2022.
Please note that tax treatment depends on the individual circumstances of each individual and may be subject to future change. The content of this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
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About the author
Ruby is a freelance writer who enjoys writing about all things personal finance. After embarking on her own side hustle journey three years ago, Ruby is passionate about helping others to learn about the ins and outs of persona… Read More
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