I’m into Premium Bonds despite 0% returns in two years, says LEE BOYCE – but they’re not for everyone…

Last week we recorded the 10th anniversary episode of the This is Money podcast in front of a live audience.

At one point we were talking about Premium Bonds and I joked that I was hodding them – a slang term that has become popular in the crypto world, meaning you shouldn’t sell your bitcoin, ethereum and the like when prices drop.

In other words: hang on for dear life.

And that’s what I do with Premium Bonds. While my assets in the NS&I savings product are not potentially declining like volatile cryptocurrencies, they are being eroded away by inflation in the form of not achieving consistent returns.

The average holding in Premium Bonds is £5,250, and around 24 million people have them. Many will of course max out at £50,000, many others will have less than £100, possibly bought in the late 1950s.

They’ve been in the news again lately, with the average prize payout rate falling from a recent high of 4.65 percent to 4 percent – ​​the third reduction since March and back to August 2023 levels.

The odds of a £1 Premium Bond winning a prize are 22,000 to one. The more you own, the greater your chances of winning a monthly prize.

My personal return since I opened them two and a half years ago is 0 percent. That’s right, I’ve never won an award.

I should point out here that I am just below the average amount, with my two largest investments in mid-2023 and early 2024.

With average luck I should have won *something*, but unfortunately I didn’t.

“Move your money, idiot,” has been going through my head a few times over the past few months, and the prize payout dropped, it has brought that into sharper focus.

But the thing is, no regular savings product gives the monthly thrill of potentially big gains – probably the biggest reason why people don’t feel the need to move unless the price is really going south.

Moreover, you can withdraw your stake at any time, unlike, for example, the lottery, in which I am rarely involved.

Returning to the live podcast, after the show was recorded and I mingled with some of the audience, this was what listeners asked me about most – and told their own stories about Premium Bonds.

In short, it’s clear that we Brits love them and like the weather, they’re also a great subject to grumble about.

Most of us also know a friend of a friend who won a big Premium Bonds award. Earlier this year an acquaintance of mine told me that her mother had raised £50,000.

It’s the hope that gets you.

Premium Bonds form a fraction of my savings, investments and pension portfolio. The mainstay should always be your pension, alongside Isa savings – both cash and shares.

And although I’m nowhere near maxing out my £20,000 annual allowance, I’m still keen to win it with the Premium Bonds.

They’re a perfect home for those who’ve maxed out their Isa allowance and built up a decent pension pot – with a cap of £50,000, plus tax-free prices and a government-backed guarantee is a no-brainer.

There are now almost 1.2 million premium bonds issued, which is part of the reason why it has become harder to win with smaller holdings.

On the other end of the spectrum, if you’re just starting to save and invest, they’re probably not the right place for your money. Start with a regular saver, build up a pot, then form a diverse portfolio, and consider it.

Yes, people occasionally win big with less than £1,000, but this is an exception and not the norm.

At the last draw the average holdings of someone who won £100,000 was £41,141 and for £50,000 it was £40,813.

Looking back at the last twelve months’ draws, the average holdings of a £1 million winner is a smaller £36,949. But no one with assets under £10,000 won the jackpot this year – and nine of the £1 million winners held the maximum £50,000.

There is, in my opinion, an exception that justifies small businesses – and that is for children… although some financial experts may disagree.

Yes, money would be better served in a Junior Isa or shares Isa, but Premium Bonds as an alternative gift for birthdays and Christmas are, in my opinion, more palatable than another unnecessary toy from relatives and friends.

The money is unlikely to grow much as small amounts trickle in, but over time it will at least increase – and from experience grandparents may be more concerned with Premium Bonds than money diverted elsewhere.

Should I sell them all and buy them again? That’s a classic myth in the world of Premium Bonds… that numbers are somehow unlucky, especially among those who bought them decades ago.

But by doing that I only miss out on a draw – and all bonds have an equal chance of winning. It’s just that people are more likely to buy them in large chunks now, compared to the few pounds here and there in the 1950s and 1960s.

You can read a piece on the Premium Bonds conspiracy theory that I helped put together a few years ago.

For now I’ll keep hodling. What are your Premium Bonds plans? Let me know: lee.boyce@thisismoney.co.uk