December 27: Martin Lewis Flags 3.3% Premium Bonds vs 4.5% Savings
Premium Bonds are back in focus after Martin Lewis warned that most savers will likely earn around 3.2–3.3% on typical luck, while the best UK savings rates pay about 4.4–4.5%. With year‑end cash decisions due, we break down how Premium Bonds compare, what the NS&I prize fund rate really means, and where tax status matters. We also outline a simple order of actions for your cash ISA allowance and other accounts before the new year.
What Martin Lewis says today
Lewis’s key point: the average saver should expect about 3.2–3.3% from Premium Bonds on typical luck, not the headline pool number. He highlights that top easy‑access or short fixes pay nearer 4.4–4.5% right now. That gap matters for most people. See coverage of his warning in the Liverpool Echo for context and examples.
Premium Bonds offer tax‑free prizes and full HM Treasury backing, which can help higher‑rate taxpayers after they have used their cash ISA allowance. Lewis explains when they become attractive compared with savings accounts in this Express guide. Liquidity is strong, but returns vary month to month. For guaranteed income, a fixed‑rate account may be better.
Year‑end is a good moment to review UK savings rates, tax bands, and cash goals. If you are holding a large balance in Premium Bonds, check your expected return against a best‑buy account. If the gap is near 1 percentage point, guaranteed interest could be worth more unless you value the chance of wins or you have tax reasons to prefer prizes.
How Premium Bonds returns really work
The NS&I prize fund rate is an average payout across all bonds. It is not a guaranteed interest rate for you. Outcomes depend on probabilities and your holding size. Many small holders may receive little or nothing in a year. Larger holders might land closer to the average, but there is always variance from the published pool figure.
On about £60,000 held, typical luck may land close to 3.2–3.3% over time, but results can be lower or higher. That spread is the key trade‑off with Premium Bonds. You give up certainty for a chance of prizes. If you need steady income for bills, a fixed or easy‑access account with a known rate can be more reliable.
Premium Bonds are backed by HM Treasury and prizes are tax‑free. With savings accounts, interest is taxable after the Personal Savings Allowance (£1,000 basic rate, £500 higher rate, £0 additional rate). Cashing out Premium Bonds is usually quick, but there is a short settlement time. Easy‑access accounts offer daily interest and fast withdrawals with a clear rate you can compare.
Smart order for parking cash at year‑end
Start with your cash ISA allowance, currently £20,000 per tax year. That shields interest from tax, which is valuable for higher‑rate and additional‑rate payers. After the ISA, consider whether Premium Bonds or a high‑rate account suits your needs. Remember that Premium Bonds returns vary, while an account at a stated rate gives certainty.
Add up expected interest across all accounts and compare it with your Personal Savings Allowance. Basic‑rate payers may have room for taxable interest before any charge. If you are near or over the allowance, Premium Bonds can help because prizes are tax‑free, though the expected return may still trail the top UK savings rates.
Keep emergency cash in easy‑access accounts with strong rates. Use short fixes for bills due in three to 12 months. Consider Premium Bonds for surplus funds where you value tax‑free prizes and full government backing. Review monthly prize outcomes and switch if your realised return drifts far below best easy‑access or fixed rates.
Actionable steps for UK savers this week
Check best UK savings rates across easy‑access and fixes, and note any funding or withdrawal rules. If you can earn near 4.5% with certainty, that will usually beat Premium Bonds for most people. Re‑check terms before applying, as providers adjust pricing near year‑end and in early January when new money flows arrive.
Segment cash into three pots: emergency, planned spending, and long‑term surplus. Use easy‑access for emergencies, short fixes for planned costs, and consider Premium Bonds for surplus where you value tax‑free prizes. This split makes comparisons clearer because each pot has a defined time horizon and a target rate to beat.
Rates can change quickly as banks react to funding needs and Bank of England moves. Re‑check UK savings rates and your Premium Bonds outcomes in January. If your effective return on bonds is lagging by around 1 percentage point or more, consider switching part of the balance to a best‑buy account while keeping some exposure for prize potential.
Final Thoughts
For most savers today, Premium Bonds are unlikely to match the best UK savings rates. Martin Lewis’s rule of thumb holds: expect roughly 3.2–3.3% on typical luck versus about 4.4–4.5% available in leading accounts. The big wins are rare, and the NS&I prize fund rate is not what you personally receive. Still, Premium Bonds can work for higher‑rate taxpayers once the cash ISA allowance is filled and the Personal Savings Allowance is used. Act now: fill your ISA, compare easy‑access and short fixes, and define how much certainty you need. Keep some Premium Bonds only if you value tax‑free prizes and HM Treasury backing over a guaranteed rate.
FAQs
Usually not. Most savers should expect about 3.2–3.3% from Premium Bonds on typical luck, while best UK savings rates are near 4.4–4.5% with certainty. If you value tax‑free prizes and government backing, bonds can still play a role, but guaranteed interest often pays more.
The NS&I prize fund rate is an average payout across all bonds. It is not a rate you earn. Your return depends on draws and holding size. Many small holders can get less than the pool figure. Larger holdings may sit closer to average, but results still vary month to month.
They can help after you have used your cash ISA allowance and your Personal Savings Allowance. Prizes are tax‑free, which can beat taxed interest. If best accounts pay far more, consider a mix: keep some Premium Bonds for prize potential and move the rest to a guaranteed rate.
Usually no. An easy‑access account with a strong rate is better for emergency cash because interest is guaranteed and you can compare it directly to best buys. Premium Bonds are liquid, but returns vary and you might win little or nothing when you need the money.
Disclaimer:
The content shared by Meyka AI PTY LTD is solely for research and informational purposes. Meyka is not a financial advisory service, and the information provided should not be considered investment or trading advice.
