Is it worth considering savings accounts with prize draws?
There can be no prizes for the conclusion that interest rates for savings accounts are currently not at their best.
With the Bank of England’s base lending rate at a historic low of just 0.1% and even the best saving rates offered by any bank only a fraction above 1%, it is difficult to know quite where to put your rainy-day funds.
Savings rates at the moment are quite simply “pitiful” – to use the description offered by a story published in the Independent newspaper on the 18th of February 2020.
Rather than let your pot of savings stagnate, therefore, perhaps it is time to look at other incentives – such as the prize draws now offered by a range of different accounts.
There is nothing especially new about the idea of entering your savings into a prize draw when low rates of interest otherwise leave those funds more or less stagnating.
Premium Bonds, after all, have been sold by the state-owned bank, National Savings & Investment (NS&I), since 1956 and an estimated 23 million people in the UK own them. The minimum investment is £25, and you can buy as much as £50,000-worth of Premium Bonds for the chance to win cash prizes of between £25 and £1 million tax-free each month.
Critically, however, Premium Bonds are not interest-bearing – although you may cash them in at their face value, they earn no interest however long you hold them.
The principle of a prize draw has also been used by other banks and building societies to attract or retain customers at a time when the incentives for savings are pretty low:
Halifax Building Society
- the Halifax Savers Prize Draw, for instance, offers three prizes of £100,000 each, 100 prizes of £1,000 and 1,500 prizes of £100 in its monthly draw;
- customers are automatically entered into the draw once they have a minimum £5,000 in any qualifying savings account or cash ISA and have maintained that balance for at least one month;
- in addition to the chance to win a prize, of course, savers continue to earn the interest relevant to the particular account in which their funds are deposited;
- Halifax claims that it has so far paid out a total of £57 million in prize money;
Nationwide Building Society
- the Nationwide’s equivalent is the Start to Save instant access savings account specifically aimed towards those who might be finding it difficult to save;
- to be entered for the monthly draw and a prize of £100, savers need to have a savings account in which they have a deposited a minimum of £50 (maximum £100) for each of the three months before the prize draw;
- in the meantime, the savings account earns 1.00% AER/gross per annum (variable) for 24 months.
Family Building Society
The Windfall Bond offered by the Family Building Society is also a savings account with a monthly prize draw – but, in this case, the chance to win up to £50,000.
With various other amounts for the winning each month, the building society estimates that you have a one in 60 chance of winning a prize within the first year of opening your qualifying account.
The drawbacks are that the minimum value bond is £10,000, there is no instant access to the funds, and the bond earns only 0.1% per annum interest (the current base rate).
The emergence of savings accounts with prize draws means that you have an alternative to Premium Bonds. The other options may also offer some level of interest. Since other savings accounts may offer slightly more in the way of interest, however, there is a trade-off between the money you might win by way of a prize and that you earn as interest.
This data is correct as at the time of writing.