Martin Lewis gives warning to those with 'few hundred quid' in bank account

17 November 2023 , 10:24

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Martin Lewis gives warning to those with 'few hundred quid' in bank account

Martin Lewis has given a warning to Brits who have a few hundred pounds put away in a bank account.

The Money Saving Expert (MSE) founder shared some advice about the UK's most popular savings account, Premium Bonds on ITV's This Morning earlier in the week. One viewer wrote in to ask Martin whether investing in Premium Bonds was "worth it".

Premium Bonds are a Government-backed savings account you can put money into, where instead of being paid interest, tax-free prizes are awarded in a monthly draw. More than 22 million people currently save in Premium Bonds.

Answering the viewer's question, Martin explained that it was "quite complicated" as Premium Bonds are "a savings account where the interest is dictated by a lottery." He noted that the Premium Bonds prize rate is currently 4.65%, which was "less than the top savings accounts" so warned that the account wouldn't be great for those who don't pay interest on their savings.

He explained: "If you have typical luck, which is based on the median average, you will earn less than 4.65%. Think about it this way, for every person that wins £1million, a lot of people have to win nothing, which is why on average, with typical luck, you get less than 4.65%.

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"The maximum [investment] is £50,000. So as a general rule of thumb, if you are a higher or top-rate taxpayer, you have enough savings that you pay interest on it, and you’re looking at putting a large amount in, they can be a pretty good bet. If you’re looking at putting a few hundred quid in and you don’t pay tax on your savings, you would be a lot better off with a normal savings account where you’re guaranteed to get the interest.”

Martin noted that the "big thing" with Premium Bonds was that it is a state-owned product with National Savings & Investments (NS&I) which means that your money is 100% safe. Although, Martin said that this shouldn't be the main reason you keep your money in them.

He added: “In all UK regulated savings accounts, you’re now protected up to £85,000 by the state’s Financial Services Compensation Scheme. And you can only put £50,000 in Premium Bonds anyway. There isn’t a safety dividend, so you’ll have to work out whether it’ll pay more. If you look at it on a typical luck assessment, the big benefit really is that you don’t pay tax.

"But a lot of people don’t pay tax on savings anyway. So it’s those who do pay tax on savings, who have higher amounts that gets you near the averages that it’ll work for.”

Ruby Flanagan