In the world of finance, the current average one-year fixed rate stands at 5.30pc as reported by financial analysts Moneyfacts. However, there are accounts that offer even higher returns – more than 6pc.
Anna Bowes, an expert from savings advice site Savings Champion, explains that Premium Bonds are not your typical savings accounts which is why they continue to be highly popular, especially among higher rate taxpayers. Prizes won through Premium Bonds are tax-free. Bowes further adds that while there is no guarantee of winning a prize with Premium Bonds, the interest rate applied to the prize fund is highly competitive. This aspect could deter those who were on the verge of withdrawing their money for a guaranteed return from another bank or building society. This is particularly true considering the greater number of bigger prizes available.
In the view of Laura Suter, a broker from AJ Bell, it is likely that many of the smallest Premium Bond accounts have been forgotten by savers who received them as gifts earlier in life. She explains that a lot of people are given Premium Bonds as children or later as presents, with the funds sitting in the accounts for years. As a result, these accounts with small amounts in them have most likely been long forgotten by the account holders. Suter believes that account holders have either neglected to withdraw their small sums due to the hassle of finding the paperwork or they simply forgot about the accounts altogether.
According to Sarah Coles, a broker from Hargreaves Lansdown, holding large sums in Premium Bonds for long periods of time without winning can result in a loss of spending power once inflation is considered. This is a significant issue given the current circumstances. Coles explains that some people opt for the steady interest earned from a savings account instead. However, there are others who are willing to take the risk in the hopes of winning a life-changing sum of money, even though the chances are quite slim.
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