Premium Bonds £1m jackpot 'worth just £500,000' – NS&I payout now ‘set to halve again’

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Premium Bonds £1m jackpot 'worth just £500,000' – NS&I payout now ‘set to halve again’

More than 23 million Britons hold Premium Bonds from National Savings & Investments (NS&I). They remain the most UK's most popular investme

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More than 23 million Britons hold Premium Bonds from National Savings & Investments (NS&I). They remain the most UK’s most popular investment, even though the annual prize rate gives savers an average return of just one percent a year.

Premium Bond holders enjoy the fun of a flutter, hoping they can win a host of prizes that start at £25 but rise as high as £50,000 or £100,000.

It’s the £1 million jackpot that generates all the excitement. That was big money when first introduced 20 years ago in 1991, but it isn’t worth as much today. In terms of spending power, its value has halved, Sarah Coles at Hargreaves Lansdown has calculated.

Today £1 million jackpot is worth roughly £500,000, which isn’t quite as exciting as it was.

Its value is now eroding at an even faster rate, as inflation skyrockets. Any winnings from Premium Bonds are already worth 5.4 percent less than they were 12 months ago. That downward trend is set to continue unless NS&I ups its jackpot.

If the £1 million Premium Bonds jackpot had kept up with inflation, NS&I would be handing out two lots of £2 million every month, but it isn’t.

Premium Bonds aren’t the only form of savings to be eroded at a faster pace by rising inflation.

Rob Burgeman, investment manager at Brewin Dolphin, said that inflation is now hammering the returns on deposit accounts, too.

Most people wrongly think cash in the bank is risk free, yet the value of your money is falling in real terms, Burgeman said. “But inflation is a silent killer, and banks do not have to warn you about its impact.”

READ MORE: Savers urged to consider ‘moving their money’ or risk losing hundreds

While investment fund managers must warn investors their capital is at risk, there is no such alert on deposit accounts.

“A more accurate bank statement would show the affect that inflation was having on your money and include warnings that cash savings may lose value over time,” Burgeman said.

Today’s inflation rate of 5.4 percent is the highest for 30 years and will erode the value of fixed sums at a frightening rate.

This applies to everything from the Premium Bonds £1m jacket to £100 in the bank, warns Les Cameron, retirement expert at M&G Wealth.

He said: “With inflation at 5.4 percent it takes a little over 12 years to halve the value of your money.”

By that logic, the NS&I £1m jackpot will be worth just £250,000 in real terms by 2034, unless increased.

Everybody needs to be saving more to keep pace with prices, Cameron said. “If you thought you could retire on savings of £100,000 but prices rise 10 percent before you retire, you need to save an additional £10,000.”

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He said that anyone funding their retirement income with cash savings or NS&I products should take action.

“Savings rates are substantially lower than inflation, so people need to decide whether to accept inflation eroding their standard of living, or take some level of investment risk to try and get a better return.”

Burgeman said in the longer run stocks and shares outperform cash and will help protect your money against inflation.

Historically, they are by far the most effective investments. “Over the past 10 years, for example, cash has eroded the value of a £10,000 investment to £8,711 in real terms. Yet the FTSE All-Share index would have turned it into £15,559, over and above increases in the cost of living.”

Premium Bonds will nonetheless remain hugely popular. The one percent annual prize rate still beats every other form of instant access savings, and the prizes are free of tax as well.

You can access your money at any time, and it is backed by the Government for extra security.

Savers should still consider spreading their money around as inflation spirals.



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