I bought £10,000 in Premium Bonds, this is how much I won in a year

To cut a long story short, after years of financial foolery, paying off my student loan, a change in personal circumstances, and squirrelling money away during the pandemic, I finally sorted my finances out enough to save £10,000 into an ‘emergency fund’.

This is cash I’ve set aside for the proverbial rainy day should I lose my job or befall some sort of disaster.

Rather than keep this money sitting in a savings account where I could be happier with the rate of interest, I decided to put it into Premium Bonds.

The purpose of this article is to consider whether I was any better off for doing so.

What are Premium Bonds?

You can skip this bit if you already know. But if you don’t, Premium Bonds are essentially a cross between a savings account and a national lottery - except the tickets are reusable.

A single bond is worth £1, though you have to buy them in £25 chunks, and you can hold up to £50,000.

The interest rate at time of writing is 4.44%, but not everyone gets interest each month.

Instead, prizes ranging from £25 to £1million are randomly allocated to bond holders, tax free.

There are two £1million jackpot prizes each month, then a number of other prizes from £100,000 downwards.

You don’t ‘lose’ your money if you don’t win - you continue holding the bond, and each month all bonds are entered into the draw.

Holders can withdraw their money at any point.

It’s a clever system in that bond holders are less likely to dip into their savings as they might miss out on winning in the next draw.

The main drawback for bond holders is that if you don’t win, there’s no interest paid, so the value of your money will be eaten away by inflation over time.

A traditional savings account, however, will pay you regular interest.

How much I won in a year

First of all, keep in mind that I am not a financial adviser, and I’m not suggesting you buy Premium Bonds. I am just sharing my experience with you.

From April 2023 to April 2024, I won £675 in prizes from my £10,000 Premium Bonds.

That would equate to me earning an annual interest rate of 6.75%.

According to Martin Lewis’s MoneySavingExpert.com website, at time of writing, the best easy-access cash ISA interest rate is 5.17%

So Premium Bonds, for me at least, in the past year, have left me better off by around £158.

NB I chose the comparison here with a cash ISA as ISA’s are also tax-free ways to save.

My best months were August and December 2023, when I won £175. Though there were plenty of months I didn’t win at all.

Reinvesting

Bond holders can choose to have their winnings paid into a bank account, or reinvested in more Premium Bonds. I chose the latter option.

This proved worth doing for me, as two of my prizes over the past 12 months came from bond numbers bought when my winnings were automatically reinvested, rather than the original £10,000 I bought.

If you’re lucky enough to hold £50,000, any prizes will be paid into your bank account - or sent out by cheque if you’re old-school.

Likewise, if you win a big enough prize to take you over the £50,000 limit, the rest will be paid out to you in cash.

This winnings on your winnings concept is, to my thoughts, at least, similar to earning interest on your interest in a bank account - though much less predictable.

Important things to keep in mind

The more money you have in Premium Bonds, the more likely you are to win.

It is no surprise that the winners of the top prizes are regularly those holding the full £50,000.

That said, there are often high winners who hold a small number of bonds.

Equally, as it is all random, you could hold £50,000 and never win. There is no guarantee of a prize.

I read somewhere that £10,000 is a tipping point at which the probability of winning makes Premium Bonds worthwhile over standard savings, but I don’t know how that was calculated - and I certainly haven’t worked it out myself.

Again, just to stress, I’m not an expert - don’t make financial decisions based on what I say!

All in all, I feel holding £10,000 (and the associated prize winnings) in Premium Bonds is right for me.

I can access that money whenever I need it, and while earning regular interest in an ISA might be a safer bet, for me, it makes something boring like an emergency fund feel a bit more fun.