Premium Bonds are failing to deliver for the majority of savers, with 62% never having won a prize, according to a freedom of information (FOI) request issued by Vanguard.
The popularity of Premium Bonds stems from their government backing (meaning any money put in is safe) and the fact that prizes are exempt from tax. However, Vanguard warned the odds simply don’t work in most savers’ favour.
The FOI revealed that 23 million people hold a combined £135.7bn in the bonds, yet the majority have never received a payout despite the headline prize rate of 3.6%.
The asset manager said this is largely because 15.1 million people have £100 or less saved, meaning their probability of winning is extremely low.
James Norton, head of retirement and investments at Vanguard Europe, said Premium Bonds still play a “useful role” as part of a wider savings strategy, particularly for people who value security and accessibility.
“But when money is being set aside for the long term, it’s important to consider whether it could be working harder through investment, particularly for those hoping to profit from the luck of the draw,” he said.
As an example, Vanguard noted that parents and grandparents saving for children could achieve far better outcomes by investing instead.
A £100 monthly contribution into the FTSE All World index over the past 18 years would have grown into a Junior ISA worth £73,000 today, the firm said. If left invested from age 18 to 66 with no further contributions, that pot could compound to around £1.3m.
“The lesson here is the power of long-term investing and compound returns,” said Norton, noting that getting started investing “doesn’t have to be complicated”.
“Focus on four key principles: Set a clear goal (e.g. covering a child’s university costs), select a balanced portfolio of investments to meet that goal, and hold it for the long-term at a low cost,” he said.
“You can build your own portfolio of investment funds, choose a ready-made portfolio, or if investing feels a little intimidating, you can hand over the keys for an expert to do it for you via a managed service – there are options to suit your preferences.”