Savers or gamblers? Many top deals now include a prize draw

Savings rates dip so low that lottery-style deals now look more enticing than ever – but savers could win nothing at all.

Savings rates have fallen to record lows, to the point where savings deals with a lottery element now offer some of the best possible returns.

Bank of England data this week revealed the average interest rate on new savings deals fell six basis points to a record low of 0.5% last month. The typical easy access account rate is also at an all-time low after falling seven basis points to 0.14%.

Compared to this, a new range of lottery-style deals look considerably more attractive, although of course these can pay nothing at all.

The most well-known of these products are Premium Bonds, offered by National Savings & Investments (NS&I).

These currently pay an effective interest rate of 1.4% a year, although this varies according to how lucky you are.

Savers can deposit between £25 and £50,000, and every £1 you put into the account buys a unique bond number.

Instead of paying interest, these numbers are entered into a monthly prize draw for the chance to win cash prizes from £25 to £1 million.

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The odds of winning for each £1 bond number are currently 24,500 to 1 until the November 2020 draw, when the effective interest rate falls to 1% and the odds lengthen to 34,500 to 1.

The main rival to Premium Bonds are the Family Building Society’s Windfall Bonds, which were resurrected earlier this month.

Savers need to deposit a minimum of £10,000 to buy a bond, and it pays the Bank of England base rate, so currently 0.1%.

But every month each qualifying bond is allocated one of 15,000 unique tickets that are entered into a draw to win 15 prizes of £1,000, three prizes of £2,500, two prizes of £10,000 and one prize of £50,000.

Family Building Society says there is a 1 in 60 chance of winning a prize. However there is a catch, as the mutual will fill the gap with blank tickets if there are not enough entries.

Interest is paid annually on 31 July and you will need to give 35 days’ notice and close your account if you want to access your funds.

Building society Nationwide also launched a lottery-style deal this week with its Mutual Reward Bond.

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This product is open to Nationwide customers who already have an account or mortgage with the building society. It pays savers a fixed-term interest rate of 0.5% for 18 months, plus the chance to win £10,000 of cash from a prize draw that will be made on 2 February 2021.

Savers can put up to £10,000 into the product and each £100 buys one entry into the prize draw.

This means that if you pay £10,000 into a Mutual Reward Bond, you will qualify for 100 entries.

The number of £10,000 prizes will depend on how much money is in the fund.

Nationwide says that your chance of winning is between at least one in 20,000 if you save £100 and one in 200 if you save £10,000 in your account.

The odds may be better than NS&I’s Premium Bonds, but you are unable to access your money until the end of the 18-month term. With the NS&I deal savers can withdraw their money at any time.

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