Won on premium bonds? Don't tell, financial advisers say

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Last month, premium bond holders won a collective £51 million in tax-free cash.

More jackpot wins than ever are set to come to bondholders later this year as the number of draws increases from one to two a month.

But, Matrix Capital told us, many big money winners are unprepared for the challenges their luck will bring and risk making mistakes by trying to tackle their finances themselves.

Premium bonds: keep it to yourself

We asked Matrix Capital for the most important piece of advice they'd give to premium bond winners.

"Keep your good fortune to yourself, at least until you have allowed yourself time to choose carefully who to share the information with," Robin Melley, a chartered financial planner at the company told us.

Winners can be caught out by rushing into decisions and spending quickly, Melley said, perhaps thinking of the many riches to rags stories we've seen over the past few years.

But, he added, the opportunities for winners are huge.

"Make a list of the three biggest opportunities that exist for you and your family at the moment," Melley advises.

"Paying for university education for children or grandchildren? Becoming debt free? Retiring early? Making gifts to family members, friends or charities? Investing in a holiday home? Helping your kids get on to the housing ladder?"

"... You want to look back over this exciting time and feel very reassured that you took some wise decisions that were well thought out and not taken in haste."

The twelve - and soon twenty-four - £1 million premium bond winners a year don't necessarily have to take professional financial advice but the NS&I do provide an advice firm to refer winners to which, since last month, has been Shropshire based Matrix.

Budget changes, but bigger wins aren't better

Premium bonds give savers the chance to win tax-free cash prizes each month: each month a number of prizes are given out ranging from £25 to £100,000 and one £1 million jackpot.

This year's budget announced that savers will be able to hold more bonds: £40,000 in June and £50,000 in the next two years, rather than the £30,000 limit we have at the moment.

From August this year onwards, the chancellor announced, the number of prize draws will increase to two every month.

However, although the number of big prizes will go up most bondholders will actually be worse off as a result of the changes.

That's because, despite the increase in the number of prizes, there aren't any plans to change the Premium Bond 'interest rate' or the amount in the prize fund.

As cash is siphoned off to pay the new prize, in other words, fewer premium bond holders will win £25 or £50 prizes and more will go without winning anything at all.

Poor value

For everyone but the very lucky, however, premium bonds have always been pretty poor value.

£25 prizes account for the vast majority of bond prize money - 87% - while there's relatively few £1,000 to £100,000 allocations before the big jackpot.

Last month a man from County Durham won a £1 million jackpot from his £870 bond holding but he's unusual.

Those with under £5,000 in bonds, that's 90% of all those that hold these bonds, win just 8.8% of prizes.

Although savings rates are currently not so great the premium bond 'interest rate' of 1.3%, based on the actual chance of winning, is easily beaten by savings accounts.

£30,000 in a tax-free savings account with an interest rate of 3.25% would earn £975 in interest over a year, for example.

Assuming winnings equivalent to that 1.3% rate, premium bonds would earn £392.33 in the same period.