Are Premium Bonds better than savings accounts?

That entirely depends on how lucky you are! Whereas with a savings account you’ll definitely receive the advertised rate of interest, if you have Premium Bonds, there’s no guarantee you’ll win anything at all.

If you are considering putting money into Premium Bonds, you’ll need to consider the fact that in the average month, the average bond will win nothing, so your money will be losing its purchasing power once inflation is factored in.

However, although easy access savings rates are currently competitive, many people may be happy to accept the risk that they might not win anything and prefer to put their money into Premium Bonds, especially as their initial investment is protected, and they can cash in their bonds at any time.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “The writing has been on the wall for Premium Bond prizes ever since the Bank of England cut interest rates in May.

“The question for many savers is whether this will be the last time the rate falls. On the one hand, NS&I’s fundraising target has risen slightly to £12 billion. On the other, at a time when the Bank of England is expected to make two more rate cuts before the end of the year, there’s a decent chance that savings rates will continue to gradually edge lower. The prize rate is likely to fall in step with it.

“This is highly unlikely to put many Premium Bond holders off. Millions of people are prepared to hang on through thick and thin, for the chance of winning a prize – and the vanishingly small chance of winning a life-changing sum of cash.”

It’s down to you to decide whether you want to put your money into Premium Bonds or whether you’d prefer guaranteed returns from your savings. Remember that you don’t have to pick one or the other; you might, for example, choose to put a bit into both so that you have a chance of winning a prize, but you’ll still be earning interest on some of your savings.

Ms Coles said: “It’s always worth taking stock when the rate falls, and considering whether you’re still happy with the deal, or whether you’d prefer the certainty of a strong rate in the wider savings market. Check what’s available from online banks and saving platforms, where you’ll usually find the strongest deals.”