Halifax prize draw and premium bonds - are they worth it?
Moneywise questions the worth of saving into premium bonds compared to savings accounts and asks whether Halifax's prize draw scheme has any value.
With National Savings & Investments (NS&I) premium bonds, savers forego interest in the hope of scooping a monthly cash prize of up to £1 million.
Those with the maximum bond holding of £30,000 can expect to win relatively frequently, presuming average luck. But most are only small prizes.
On average, premium bond savers receive less in prize money than they would get in interest if their money were held in a best-buy account. For example, based on a rate of 3.25% you would earn £975 in interest for a £30,000 deposit over a year.
Halifax prize draw
Halifax offers a savings deal with similarities to premium bonds.
New and existing savers at Halifax (except for those living in Northern Ireland) who have more than £5,000 on deposit can opt into a monthly prize draw to win amounts up to and including £100,000, with a special £250,000 draw in December.
The best-paying eligible account is Halifax's 2.5% five-year fixed-rate ISA. If savers are happy with the rate being offered by Halifax on their savings then the chance of winning in the draw will be an added incentive to keep £5,000 in the account.
A form of National Savings Certificate, premium bonds are effectively gilt-edged securities: you loan your money to the government and, in return, it pays you for the privilege with a guarantee it will return your capital at a specified date. Where premium bonds differ is that the interest payments (currently 1.5%) are pooled and paid out as prize money and you can get your cash back within a fortnight, with no risk. Launched by Chancellor of the Exchequer Harold Macmillan in his 1956 Budget, every single £1 unit has the same chance of winning and in May 2011, 1,772,482 winners (from a total draw of 42,539,589,993 eligible bond numbers) shared £53,174,500. The odds of winning are 24,000 to 1 and the maximum holding is £30,000 per person but it remains the only punt in which you can perpetually recycle your stake money.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.