Best fixed-rate savings account pays 2.8% but should you take a gamble on Premium Bonds?

Best fixed-rate savings account pays 2.8% but should you take a gamble on Premium Bonds?

NS&I has announced it will increase the Premium Bonds prize fund rate from 1 percent to 1.4 percent, a move that Express.co.uk called for earlier this year.

The prize fund rate is the percentage return you can expect to get every year, with average luck.

The change kicks in from the June draw and the odds of each £1 Premium Bond winning a prize will also improve.

From next month, they will fall from 34,500-to-1 to 24,500-to-1.

Customers also have a chance to win a further 1.4 million tax-free prizes each month in a move Interactive Investor head of investment Victoria Scholar said was long overdue. “The prize fund rate has remained static for 18 months while Bank of England base rate has climbed from 0.1 percent to 1 percent since December.”

NS&I needed to make Premium Bonds more competitive as the Bank of England steadily hikes rates, but one thing has not changed, said Laura Suter, head of personal finance at AJ Bell. “The chance of winning the big £1 million Premium Bonds jackpot hasn’t got any better, with only two available each month.”

However, the likelihood of netting a prize worth £100,000 and below has slightly improved, she added.

Savers can get a slightly better 1.5 percent with easy access from JP Morgan’s new Chase saver account.

Unlike the Premium Bonds prize rate, this return is guaranteed, and doesn’t depend on luck.

READ MORE: Premium Bonds: NS&I savings ‘may not be right for you’

The Bank of England looks set to increase base rate several more times this year, which means today’s best buy fixed interest savings rates may soon look disappointing.

However, there is no guarantee and there is another catch, Bowes said. “All the time you are waiting for the next best rate, your money will be earning less.”

There are other considerations.

With Premium Bonds you can access your money at any time. You can also save from as little as £25, up to a maximum of £5,000.

By contrast, you need a minimum £1,000 to take out the Paragon one-year bond, and £5,000 for the United Trust Bank three and five-year fixed rates.

With Premium Bonds, you have peace of mind as your money is backed by HM Treasury.

However, the first £85,000 in a UK savings account has similar protection, under the Financial Services Compensation scheme, or FSCS.

Bowes said mix and match works best. “To protect the real value of your money against inflation, consider spread of different savings, including easy access, fixed-rate accounts and Premium Bonds.

Remember that no savings account offers what Premium Bonds does: the chance to become an overnight millionaire.

Published at Wed, 25 May 2022 07:10:00 +0000