Premium Bonds savers warned of ‘large downside’ ahead | U.Okay.Finance News
Premium Bonds prospects have been warned there’s a main downside with the financial savings scheme that they need to suppose by means of.Savers could also be reconsidering their choices because the prize fund charge for Premium Bonds is dropping again from the August draw.The charge is falling from 3.8 p.c down to three.6 p.c, following cuts in April and in January this 12 months. Tom Francis, head of Advice at Octopus Money, warned prospects: “Premium Bonds are a fun, safe way to save, but if you’re serious about growing your money, they’re probably not the best place to park your cash.”He mentioned there’s a main disadvantage with the scheme: “The big problem is they don’t pay interest. So, unless you win a prize, and most people don’t, your money just sits there, quietly shrinking in value over time.”Inflation is doing its factor within the background, and with out curiosity to offset it, you are successfully dropping money the longer it sits.”The value of your holdings stays the same even if you don’t win a prize, but as the cost of living increases, this means your money is effectively losing value.Research by Octopus Money found that almost a third of Premium Bond holders expect to win a prize within six months, but on average people wait 3.5 years to get their first prize.Mr Francis said: “That’s a long time to earn nothing, particularly when you would be getting over 4.5% curiosity with a first rate money ISA.”If it’s safety you’re after, a cash ISA could be a much better bet. Your money’s protected, you earn interest, and many accounts are offering upwards of 4% right now. Some fixed-rate options are even higher.”He mentioned that some people should discover Premium Bonds are appropriate for them in the event that they like the thought of profitable a prize, nevertheless it’s good to have a diversified financial savings method.He defined: “A mix of a high-interest cash ISA and, if you’re comfortable with a little more risk, a stocks and shares ISA could put your money to much better use.”You can invest up to £20,000 tax-free, and over time, this offers you a preventing probability of beating inflation and really growing your pot.”The Premium Bonds prize draw takes place at the beginning of every month. You can increase your possibilities of profitable a prize by shopping for more Bonds. Each £1 Bond has an equal probability of being paired with a prize.The odds of profitable for every £1 Bond are at the moment 22,000 to at least one and can keep at this stage even with the speed cut. Over the previous 5 years, 94 p.c of the winners of the £1million jackpot held over £10,000, whereas 75 p.c held over £25,000.Looking on the winners for 2024, virtually 90 p.c of winners gained much less than £2,000, with simply 0.32 p.c taking home more than £10,000.
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