Premium Bonds are the nation’s favourite way to save, with more than 22 million entering into the prize draw every month.
While you could stand to win up to £1m, it’s extremely unlikely – and your chances of winning anything at all are just 1 in 24,000.
Rival banks are now trying to woo savers towards their own lottery accounts. The prizes may be smaller, but you have a much better chance of winning one.
Here, Telegraph Money takes a look at the options for savers who want to try their luck.
Nationwide Start to Save Prize Draw
Britain’s biggest building society, Nationwide, offers the chance of winning £250 in its prize draw – but there are a few catches.
Firstly, the account has a 24-month term, and is aimed at those who want to get into the habit of saving. As such, you can only deposit between £25-£50 each month – bigger deposits are not allowed.
To qualify for entry to its prize draw, you must have made a deposit in the previous six months before the prize draw takes place. The next prize draws are scheduled for 22 August 2023 and 20 February 2024, so new savers are already too late to qualify for the August draw.
On the plus side, everything you save earns a variable rate of 5.25 per cent AER, but after the two years is up the most interest you can earn is £33.26, based on saving the maximum £600. If you saved the £600 as a lump sum, you could beat this return with a two-year fixed-term savings account that pays 2.8 per cent – which is currently nowhere near market-leading. It’s also less than what you’d get from First Direct’s regular saver, which pays 7pc.
But, of course, your return will be much better if you win a prize. Out of 31,713 eligible savers, 917 won in the latest draw in February, which equates to a 1 in 34 chance of winning.
Halifax Savers Prize Draw
Savers with at least £5,000 in a qualifying Halifax account will be automatically entered in to win prizes each month. There are three prizes worth £100,000, 100 worth £1,000 and 1,500 worth £100.
Halifax Everyday Saver, one of the qualifying accounts, pays just 0.9 per cent on balances of £1 to £9,999.
Meanwhile, the highest easy-access rate on the market is 3.71 per cent, from Chip. On a deposit of £5,000 – the minimum amount of savings required to qualify for the monthly prize draw – the difference in interest between 3.71 per cent and 0.9 per cent is £143 a year.
Halifax says all its savings accounts and cash Isas qualify for the draw, apart from accounts for children. For this reason, a better option for those who want to take part in the draw would be to take out a one-year Halifax Fixed Saver account, which pays 4.1 per cent. This is competitive compared with the top rate on the market – currently 4.9pc from StreamBank, according to Moneyfacts. The difference in interest paid by the two accounts is only £41 a year on £5,000.
Chip Prize Savings Account
Advertised as a “more premium” Premium Bonds, the Chip Prize Savings Account gives out £50,000 worth of prizes each month, and allows easy-access withdrawals.
Each £10 saved in the account amounts to one entry into the draw, and the odds of each entry winning is 1 in 6,506. There’s a grand prize of £10,000, and 2,651 smaller prizes worth between £10 and £100. You can win multiple prizes.
Savers need to have at least £100 saved in the account to qualify for the following month’s competition – and you get 10 prize draw entries for this amount. You can save a maximum of £85,000, which would get you 8,500 prize draw entries.
Savings of up to £85,000 per person are protected by the Financial Services Compensation Scheme, a lifeboat fund, while state-backed NS&I’s Premium Bonds are 100pc guaranteed by the Treasury.
Like Premium Bonds, Chip’s account does not pay interest but is easy access. The more you have saved, the more prizes you’ll need to win to stop the value of your savings being eroded by inflation.
How do these accounts compare to Premium Bonds?
The prize fund rate of National Savings & Investments flagship savings draw is currently 3.3pc, reflecting the average prize payout. However, you won’t actually receive any interest, meaning your cash will lose value unless you win prizes. Savers have the chance of winning prizes from £25, up to a jackpot of £1m.
The odds of each £1 bond winning is 24,000 to 1 – far more remote than with the alternative prize draws we’ve outlined here.
You can save between £25 and £50,000; the more you have in the account, the greater the chances of winning.
What are the downsides?
While the prospect of winning a prize can make saving more fun, it’s always more likely that you won’t win one. As many prize draw accounts pay little interest – or none at all – it may not be a suitable strategy if you’re seeking a reliable return.
Anna Bowes, of Savings Champion, a comparison site, said these prize accounts were not suitable for those looking for guaranteed interest income.
“A prize draw is the cherry on the top,” she said, “it’s not the be-all and end-all. You might lose out by picking a poor account for the chance to be in a prize draw which you may well not win.”
This article was first published on May 11 2023 and is kept updated with the latest information.