The number of over-60s holding premium bonds has grown by more than 900,000 since before the Covid pandemic – a jump of more than 20 per cent.
Figures obtained by The i Paper via freedom of information request show there are now 5,698,169 over-60s holding premium bonds, compared to 4,794,674 in 2019.
Part of the increase is down to more people holding premium bonds – a UK government-backed savings product, that provides a chance to win prizes each month – over the past six years.
But the number of over-60s with the product – offered by National Savings and Investments (NS&I) – has increased at a faster rate than among other age groups.
The number of under-30s with premium bonds has only increased marginally, from 1,960,970 to 2,170,026 over the same period for example
So why are more over-60s taking out the accounts? Experts weigh in below.
What are premium bonds?
Premium bonds are a unique savings product issued by National Savings & Investments (NS&I), backed by the UK Government. Instead of earning interest, your savings are entered into a monthly prize draw, with your return based on luck.
How they work:
- You purchase bonds in units of £1, with a minimum investment of £25.
- Every £1 bond has an equal chance of winning in the monthly draw.
- Each month, a range of tax-free cash prizes are awarded, from £25 to £1m.
- The more bonds you hold, the better your chances, but there’s no guarantee of winning anything.
- You can hold up to £50,000 in premium bonds.
Why are more over-60s taking them out?
The number of premium bond holders has increased over the past six years.
In 2019, there were 22 million holders, and now there are more than 24 million.
Part of the reason for that is probably to do with the prize rate. In 2019, with interest rates at 0.75 per cent, the prize rate was 1.4 per cent, and for every £1 you held you had a 24,500 to 1 odds of winning.
Now the rate is 3.8 per cent, and you have 22,000 to 1 odds.
But there are others factors too, according to experts, and one key factor is tax.
People can put £20,000 of savings and investments into an ISA each year, and the interest or gains they make are free of tax.
People only have a set allowance of interest they can earn before tax is owed – £1,000 for 20 per cent taxpayers, £500 for 40 per cent taxpayers and nothing for 45 per cent taxpayers.
Craig Rickman of interactive investor explains that when interest rates were low, like in 2019, savers were unlikely to hit those thresholds, but now, savings rates are high, and so the tax-free status of premium bonds can be more appealing.
He said: “A few years ago, when the top accounts paid 1 per cent a year, you’d have needed north of £100,000 to face tax on savings interest. But savers can now earn 5 per cent if they shop around, meaning the savings allowance is absorbed once savings hit £20,000 or £10,000 for 20 per cent and 40 per cent taxpayers, respectively.
“As older people tend to have the largest wealth – they’ve had more time to accrue it and life’s most expensive outgoings like mortgages have often been cleared – they’re more likely to max out their ISA and use up their savings allowance. Premium bonds are the remaining tax-free option.”
Sarah Coles of Hargreaves Lansdown added: “Older people are likely to have more savings, because they’ll build their assets during their working life to prepare for retirement. This will naturally mean they hold more in all sorts of savings products – including premium bonds.
She also said the attraction for holders was the chance that you could win a large amount of money.
“For older people the biggest attraction of premium bonds is the outside chance of winning a life-changing sum of money. If you’re in your seventies and eighties, you don’t have a huge period of time to slowly and carefully build wealth in savings, so you might decide to take a chance on winning tens of thousands of pounds overnight instead.”
Are they the right option for over-60s?
Though the chance of winning big will have attracted many savers, Rickman warns that there are downsides to premium bonds.
He says the odds of winning a large amount of money are “beyond slim”.
“There’s no guarantee the prizes you win throughout the year will match what you can get in a savings account even after tax has been deducted,” he adds.
In his guide on premium bonds, MoneySavingExpert.com founder Martin Lewis explains: “The nearest thing premium bonds have to an interest rate is their annual prize rate, which is currently 3.8 per cent. The interest rate describes the ‘average’ payout, but it’s just a vague watermark.
“It describes the ‘mean’ average, indicating that for every £100 paid into bonds, on average £3.80 a year is paid out – yet in practice this is impossible, as the smallest prize is £25.
Regardless, there are multiple savings accounts and ISAs that beat the premium bonds rate of 3.8 per cent very comfortably.
Among cash ISA accounts, Trading 212 offers an easy access rate of 5.05 per cent, once a short-term bonus rate is factored in.
Among accounts for those who have used up their ISA allowance, Charter Savings Bank offers 4.59 per cent with unlimited penalty-free withdrawals.
As Lewis explains: “You’re actually more likely to get more for your money with savings than premium bonds if you have average luck.
“So overall, the summary is premium bonds can beat normal easy-access savings, but you’ll need to have above average luck to ensure that comes true – and for most, guaranteed interest from savings is the better option.”
An NS&I spokesperson said: “Premium bonds are an easy access product, and we typically see fluctuations in holdings as people move their money in and out in response to changes in interest rates and wider economic conditions.”
