Full Breakdown
Martin Lewis Warns Against Premium Bonds for Savers
2/6/2026, 9:46:15 AM
Financial Expert's Advice on Premium Bonds
Martin Lewis, a prominent financial expert, has recently cautioned savers about the potential drawbacks of investing in Premium Bonds, particularly in light of upcoming changes to Individual Savings Accounts (ISAs). Speaking on his BBC podcast, Lewis addressed a listener's inquiry regarding tax-efficient savings for her two children, both aged 10. The listener had invested £1,500 in Premium Bonds after maxing out their Junior ISAs for the current tax year, seeking to avoid tax liabilities.
Core Concerns with Premium Bonds
Lewis highlighted that while Premium Bonds offer tax-free prizes, they may not be the most effective means of growing savings. The National Savings & Investments (NS&I) scheme currently provides a prize fund rate of 3.6%, but the odds of winning on each £1 Bond are approximately 22,000 to one. He pointed out that the average return on Premium Bonds is often negligible, with £1,000 yielding an average return of zero, and even £10,000 generating only around £300 annually. Most prizes are modest, typically ranging from £25 to £50, which may not provide substantial growth for savers.
Alternative Savings Options
Lewis suggested that the listener would be better served by placing the £1,500 in a traditional savings account, such as the Nationwide Flex Saver or the Halifax Regular Saver, which currently offer interest rates around 5%. He noted that this alternative could generate approximately £75 in interest, contrasting sharply with the potential returns from Premium Bonds. Lewis emphasized, “You’d be better off paying 20% tax on a 4% return than no tax on a zero per cent return.”
Implications of Upcoming ISA Changes
The warning from Lewis comes as Chancellor Rachel Reeves announced in the Autumn Budget 2025 that starting April 2027, the ISA allowance will be divided, with only £12,000 available for cash ISAs and the remainder required to be invested in stocks and shares. This change could further impact savers' strategies, as they may need to reconsider their investment choices in light of reduced cash ISA options.
Expert Consensus on Premium Bonds
Experts in the financial sector have echoed Lewis's sentiments, advising savers to reassess their options. Kate Steere from the comparison site Finder remarked, “For most Brits, putting cash into Premium Bonds would be a mistake. While they offer security and shelter from the taxman, you could end up earning absolutely nothing.” With inflation remaining steady, the real value of cash savings could diminish if returns are not competitive.
Verbatim Quotes
- “However, Martin said: “I think you may be slightly letting the tax tail wag the dog here.” — Martin Lewis, Financial Expert
- “You’d be better off paying 20% tax on a 4% return than no tax on a zero per cent return.” — Martin Lewis, Financial Expert
- “Kate Steere of comparison site Finder said: “For most Brits, putting cash into Premium Bonds would be a mistake.” — Kate Steere, Finder
In summary, Martin Lewis's advice serves as a critical reminder for savers to evaluate the effectiveness of their investment choices, particularly in light of changing financial landscapes and the limitations of Premium Bonds.
