June has arrived, meaning NS&I has unveiled the results of the latest Premium Bonds prize draw. Amid a low interest rate environment, many may be wanting to explore their savings options.
With the Bank of England Base Rate continuing to be held at a record low of 0.1 percent, savers across the UK have felt the impact.
However, green shoots have started to appear in the savings market, as Derek Sprawling, savings director at Paragon Bank, commented.
He described how average interest rates have been “inching up for the first time since October 2020”.
“Data from Moneyfacts shows that the average rate on a one-year fixed rate product is now 0.44 percent, up from 0.42 percent last month,” he said.
But what about other forms of savings accounts, such as easy access savings?
“Despite fixed rate accounts looking up, Moneyfacts data also shows that the average interest rate on easy access products is still a poultry 0.16 percent,” Ms Sprawling said.
“This is less than half of the rates currently offered by providers on easy access in the best-buy tables.
“My suggestion for savers looking for a competitive rate with access would be to review their savings goals and consider different types of accounts outside of traditional easy access or fixed rate products.
“For those saving in an emergency fund, a limited or defined access product could be a great option, and offers a bit of extra interest.
“For people saving for a specific goal who are sure they won’t need the money until a known date, notice accounts should also be considered.”
The savings director went on to discuss prize draws, which several banks and building societies currently offer, as does NS&I with the Premium Bonds.
“In this low rate environment, we are also seeing more and more providers offer prize accounts to customers, which give people the chance to win a cash prize of as little as a pound or as much as a £1million,” he said.
“However, a recent investigation by The Telegraph revealed that 74 percent of premium bond winners have never won any money at all, and that most winners have large sums invested.
“It’s important for savers to remember that the odds are very much against them with most prize accounts, and that chances of winning a prize are often less than one in a thousand.
“There is a risk that the allure of prize accounts might just guarantee savers miss out on hundreds or even thousands of potential interest if they just selected a best-buy interest-paying product.”
The odds of winning per £1 Bond number is 34,500 to one.
However, Mr Sprawling discussed the maths behind why the amount of savings a person have could potentially increase chances of winning.
“It’s also worth noting that saving large sums in a prize account increases your chance of winning considerably, which is why half of premium bond balances are held by less than five percent of customers,” he said.
“If you have a few thousand to invest, it’s likely a better idea to look at other options as you’re likely to earn nothing.
“Whichever option savers choose, there is one rule of thumb to stick to: move any savings out of current accounts if you aren’t earning any interest.
“As we come out of lockdown and begin to spend a little bit more, having lockdown savings in a separate account will also be very helpful if you’re trying to budget effectively.”