The total pool of money from which premium bond ‘prizes’ are paid has been reduced, but a greater proportion of the pool from which ‘prizes’ are paid is now allocated to £25 prizes than to £50, £100 or larger prizes and consequently the chances of winning a £25 prize have increased.
Interestingly, the laws of mathematics suggest that the chances of winning increase according to the number of bonds which are held, and the best chances will apply to investors with the maximum £50,000 holding.
The chance of winning a £1,000 prize is estimated at once in 87 years, while you would have to wait 2,361 years to win a £5,000 prize and 4,825 years to win £10,000. The odds on anything higher are so remote as to be totally hypothetical.
For the £50,000 bond holder, the effective rate of return based on £25 prizes is 0.98%, tax-free and guaranteed by the government. For the basic rate taxpayer this equates to 1.22% and for the higher rate taxpayer, 1.63%.
Conclusion: for those able to invest in larger holdings, premium bond can provide a reasonable income and a useful means of diversifying investment portfolios.