Premium Bonds savers have missed out on a nearly £16,000 savings pot due to diminishing returns over the years, damning new research has found.
Research from Fidelity reveals that typical Premium Bond holders have lost out financially due to placing their money in the monthly lottery draw.
An investment of £5,000 placed into Premium Bonds back in 2016 would today be worth approximately £6,190 on average, based on historical prize rates.
The findings highlight how inflation has quietly eroded the value of money held in the Treasury-backed savings product, despite its enduring popularity among roughly one-third of the British population.
New research suggests Premium Bonds customers are losing out on a significant savings boost
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Individual outcomes vary considerably depending on monthly prize draw results. Those who opted instead for stock market investments could have fared significantly better.
Placing the same £5,000 into a global equity tracker such as the Fidelity Index World fund would have generated a pot worth £15,900 over the decade.
Jemma Slingo, pensions and investment specialist at Fidelity International, said: "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."
How would a £5,000 investment have performed compared to £5,000 in Premium Bonds?
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| GETTYThis consideration proves especially relevant for children's savings, where lengthy investment horizons typically favour equity exposure.
National Savings & Investments (NS&I) has responded by boosting the number of prizes available from July onwards.
The changes will introduce 322,000 additional prizes compared with current monthly draws, featuring 12 extra £100,000 awards, 24 more at £50,000 and a further 49 prizes worth £25,000.
Odds of securing a win will also improve, shifting from one in 23,000 to one in 22,000.
How have Premium Bonds compared to the Ftse 100? | LIGHTYEAR Rachel Springall, finance expert at Moneyfactscompare, noted that while savers would be "delighted" by the prize boost, the average implied return still trails easy-access bank accounts currently paying four per cent interest.
Fixed-rate deals can deliver even higher returns of 4.5 per cent annually or more.
Ms Springall observed that the 3.8 per cent implied rate remains identical to twelve months ago, despite the increased prize numbers.
She said: "This move from NS&I comes at a time where there are expectations for interest to stay higher for longer, so it is important that it remains in a somewhat middle ground space to offer a fair rate, but not lead the market outright."