The best fixed rate savings account yields 2.8%, but should you bet on premium bonds? | Personal finance | Finance
NS&I has announced it will raise the premium bond price fund rate from 1% to 1.4%, a move Express.co.uk requested earlier this year.
The fund’s price rate is the percentage return you can expect to earn each year, with average chance.
The change will come into effect from the June draw and the odds of each £1 Premium Bond winning a prize will also improve.
Starting next month, they will go from 34,500 to 1 to 24,500 to 1.
Customers also have the opportunity to win an additional 1.4 million tax-free prizes each month, which Victoria Scholar, head of investments at Interactive Investor, said was long overdue. “The price fund rate has been static for 18 months while the Bank of England base rate has fallen from 0.1% to 1% since December.”
NS&I had to make premium bonds more competitive as the Bank of England steadily hikes rates, but one thing hasn’t changed, said Laura Suter, personal finance manager at AJ Bell. “The odds of winning the big £1million premium bond jackpot have not improved, with only two available each month.”
However, the odds of winning a prize worth £100,000 and under have improved slightly, she added.
Savers can get just over 1.5% with easy access from JP Morgan’s new Chase Savings Account.
Unlike the premium bond price rate, this return is guaranteed and does not depend on luck.
READ MORE: Premium bonds: NS&I savings ‘may not be right for you’
The Bank of England looks set to raise its key rate several times this year, which means that today’s best fixed interest savings rates may soon look disappointing.
However, there are no guarantees and there is another catch, Bowes said. “Any time you wait for the next best rate, your money will earn less.”
There are other considerations.
With premium bonds, you can access your money at any time. You can also save from just £25, up to a maximum of £5,000.
By contrast, you need a minimum of £1,000 to buy Paragon’s one-year bond and £5,000 for United Trust Bank’s three- and five-year fixed rates.
With premium bonds you have peace of mind because your money is guaranteed 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 worked best. “To protect the real value of your money against inflation, consider allocating different savings, including easy access, fixed rate accounts and premium bonds.
Remember that no savings account offers what premium bonds do: the chance to become a millionaire overnight.