Premium Bonds savers could be losing out on major long-term returns by keeping too much cash in the savings products.
Some may have missed out on thousands of pounds in potential wealth growth over the past decade.
Millions of British savers who have kept their money in Premium Bonds over the past 10 years may have sacrificed thousands of pounds in potential investment returns, according to new analysis published today.
Fidelity International said the popular NS&I product carries a significant “opportunity cost” for people holding it over long periods, with stock market investments producing far stronger growth.
Around one third of the UK population currently owns Premium Bonds, meaning the findings could affect millions of households.
The research found savers who put £5,000 into Premium Bonds 10 years ago would now have around £6,190, assuming any prize winnings were reinvested based on historic prize fund rates.
However, inflation over the same period means that original £5,000 would need to be worth £6,992 today just to keep the same spending power, effectively leaving savers worse off in real terms.
Premium Bonds holders have been issued a warning | GETTY / NS&I
Fidelity noted the calculation is not exact because Premium Bonds do not guarantee returns, with outcomes depending heavily on luck in the monthly prize draws.
By comparison, stock market investments delivered significantly stronger returns. Fidelity said the same £5,000 invested into a global tracker fund such as Fidelity Index World in March 2016, with dividends reinvested, would now be worth roughly £15,900.
Those preferring domestic investments would also have fared considerably better. A tracker fund following the FTSE 100, comprising Britain’s largest listed companies, would have transformed the initial £5,000 into around £11,600 over the decade.
Around a third of the UK population hold Premium Bonds, with average holding periods of 10 years
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GETTYData obtained by Fidelity from NS&I indicates that bondholders typically retain their investment for around a decade on average. The product remains particularly popular as a gift for younger generations, with 850,000 children under the age of 16 currently holding bonds, frequently purchased by relatives.
Whilst Fidelity acknowledges that cash-like products including Premium Bonds serve a valuable purpose in providing financial stability and security, the firm’s research suggests that maintaining such holdings over prolonged periods carries a measurable cost.
Jemma Slingo, Pensions and Investment Specialist at Fidelity International, said: “Premium Bonds can play a useful role in a balanced financial plan.
£5,000 in Premium Bonds grew to £6,190 over the past decade – but lost value after inflation
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GETTYThey offer capital security and tax-free prizes, making them a good option for short-term savings or an emergency fund.”
She cautioned that over longer timeframes, inflation gradually diminishes the real value of cash holdings, whilst returns remain dependent on prize draw outcomes.
Mr Slingo emphasised this concern applies particularly to children’s savings, noting that even modest sums invested in equities over such extended periods possess significantly greater growth potential.