Holding premium bonds for a decade could cost savers thousands of pounds in missed investment growth, says Fidelity International.
Around a third of the UK population hold premium bonds, with data from NS&I showing that savers typically hold them for around 10 years. As many as 850,000 under-16s also own bonds, often gifted by family members.
According to Fidelity, a saver who invested £5,000 in premium bonds in 2016 would have seen their holding grow to roughly £6,190 by 2026. However, inflation means that £5,000 in 2016 would be worth £6,992 today, leaving the saver worse off in real terms.
By comparison, investing the same amount in the stock market would have delivered significantly stronger returns. A £5,000 investment in a global tracker fund in March 2016, with dividends reinvested, would have grown to approximately £15,900 over the same period.
Similarly, a fund that tracks the FTSE 100 would have seen the figure grow to about £11,600 over the past 10 years.
Jemma Slingo, pensions and investment specialist at Fidelity International, said: “Premium Bonds can play a useful role in a balanced financial plan. They offer capital security and tax-free prizes, making them a good option for short-term savings or an emergency fund.
“Where savers need to be careful is over longer time horizons. While your money is safe in cash terms, inflation can steadily erode its real value, and returns from Premium Bonds are uncertain as they depend on prize draws. Over time, that can add up to a significant opportunity cost compared to investing.
“This is especially important for children. Premium Bonds are a popular gift, but with such long time horizons, even small amounts invested in the stock market have much greater potential to grow.”
Slingo said the key is matching money to goals. While cash has its place for short-term needs, for long-term investing putting money to work in the market gives it a much better chance of keeping ahead of inflation and delivering meaningful growth.
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