In March 2020, the coronavirus pandemic sent the Bank of England base rate plummeting twice in ten days. With interest rates currently at a historic low of just 0.1%, deciding where to place your savings isn’t easy.

In June last year, we asked: where should you look for competitive interest rates for your savings? Having ruled out the high street banks, one possible answer was clear: National Savings & Investments (NS&I).

Premium Bonds are an attractive and straightforward way to save. As well as the knowledge that your savings are backed by the Treasury, and therefore 100% safe, there’s also the chance to win a top cash prize of £1 million, tax-free.

With rates low, the Premium-Bond model is proving increasingly attractive to other providers looking to incentivise saving. Halifax, Nationwide, and the Post Office are all currently offering savings accounts with the chance of winning through prize draws.

Keep reading to find out how these products work, and which – if any – you should choose.

Premium Bonds offer risk-free saving and the chance to win big

Founded in 1861, NS&I has around 25 million customers, with more than £179 billion invested.

When you save with NS&I, you are effectively lending money to the government, meaning your money is Treasury-backed and 100% secure. You can save as little as £25, either via a one-off deposit or through a monthly standing order, while the maximum you can hold is £50,000. This means a couple can invest up to £100,000.

Although you need to be over 16 to hold them, you can buy Premium Bonds on behalf of a child, to be looked after by a parent or guardian until the child reaches age 16. This makes Premium Bonds a great gift for grandchildren.

Rather than receiving interest on your Premium Bond savings, each £1 bond you own is your entry into a monthly prize draw. Prizes range from £1 million to £25, and all prizes are tax-free.

The current prize fund rate (down from 1.4% in December 2020) is 1.0%.

Source: NS&I

As well as Premium Bonds, NS&I offers other ways to save including ISAs and direct saver accounts.

In his March Budget, Rishi Sunak also announced the introduction of a new green retail NS&I product, available from summer 2021. The product is designed to give UK savers the chance to save while contributing to the collective effort to tackle climate change.

With rates low, other providers are incentivising saving with cash draws

While the Bank of England base rate remains low, providers are turning to cash prizes to incentivise saving into their accounts too. These offers are great for encouraging people to save who wouldn’t otherwise, as well as giving regular savers the chance of a bonus win.

Here’s how three of the prize draw savings accounts work:

Post Office

The Post Office recently announced three prize draws, taking place between 18 January and 30 April 2021, so you’ll need to be quick. You will need to deposit a minimum of £1,000 into a new or existing eligible account and you could win the £10,000 jackpot.

Eligible accounts include their Instant Saver, Growth Bond, Easy Access Cash ISA, Fixed Rate Cash ISA, or existing Reward Saver.

Having made the necessary deposit, you’ll need to be sure to opt-in as entry into the prize draw isn’t automatic.

Nationwide

Nationwide is incentivising regular saving through its Start to Save account. You’ll need to increase your account balance by at least £50 (but by no more than £100) in each of the three calendar months leading up to the month of a prize draw.

The next prizes are due to be selected in April, July, and October 2021. The prize is £100 and over 1,300 savers won in the last draw, held in January.

Halifax

If you hold £5,000 or more in any Halifax savings account and Cash ISA (excluding children’s accounts) you could be eligible for their prize draw.

You’ll need to keep the £5,000 in your account for the whole of the calendar month before the draw. The top prize is £100,000. Three savers win the top prize each month, with 100 winning £1,000 and 1,500 receiving £100.

Get in touch

While others jump on the prize draw bandwagon, NS&I Premium Bonds offer you two chances to win £1 million each month, while also guaranteeing the security of your funds.

With savings rates low, that cash incentive might be a great way to save or to encourage your children and grandchildren to save.

If you have money earning minimal interest with a high street bank, we can help you decide the best place for it so get in touch.

Later in the year, I’ll be looking in more detail at the odds of attaining the full 1.0% paid out as prizes by NS&I, so stay tuned. In the meantime, please contact us if you’d like to discuss any aspect of your finances, whether it’s rebalancing an investment portfolio, planning for retirement, or managing your estate.

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Please note

The Financial Conduct Authority does not regulate NS&I products.