Halifax is launching a free lottery scheme for savers, with monthly prizes of up to £100,000 available. But how do the rewards stack up against Premium Bonds? We take a closer look.
Getting people excited about saving is a pretty tough task, especially in times like these. With interest rates at record lows and recent warnings that households face a 10-year squeeze on their budgets, putting cash aside is falling further down the list of priorities for many families.
In an attempt to shake some of that gloom, Halifax has launched a new lottery scheme for new and existing savers. The Halifax Savers Prize Draw will offer monthly prizes ranging from £100 to £100,000 to all over-18s with deposits of over £5,000 in one of the bank’s savings accounts.
These prizes will not only be tax-free, but will also be offered on top of any interest you’d already receive.
To qualify, savers will have to register for the scheme and ensure that their total balance doesn’t fall below the £5,000 level required. If it does, customers can simply top up to the required amount and, after a full calendar month, they will be automatically re-entered into the draw.
The lottery is the first of its kind for a UK bank, but takes its lead from the government’s well-established Premium Bonds scheme – a long-time favourite with British savers. So which offers the best returns?
Halifax vs. Premium Bonds: which is a better bet?
Premium Bonds were first introduced way back in 1956, and have become the most popular savings vehicle in the country, holding over £42 billion of our cash.
The idea, which still stands to this day, is that investors in the bonds would be rewarded with the chance to win cash prizes, rather than receiving interest on their money. These are selected in a random draw by the famous ERNIE machine (standing for Electronic Random Number Indicator Equipment).
But over recent years the rewards on offer with Premium Bonds have slumped and investors now have a 24,000-to-one shot at winning a prize for every £1 they invest. That’s because the bonds are attached to the Bank of England base rate, which now stands at a record low of 0.5 per cent. Although it’s worth bearing in mind that the top prize is a dazzling £1 million, followed by prizes ranging from £100,000 to as little as £25.
In the June 2011 draw there were close to 1.8 million individual prizes dished out in total, though only 162 of these were worth more than £1,000.
It’s difficult to compare these odds directly with Halifax’s prize draw – this will all depend on how many Halifax savers choose to register for the scheme, and the bank is refusing to provide estimates at present. But we do know that they will be giving out three £100,000 jackpots, along with one hundred £1,000 prizes and one thousand lots of £100.
Given that almost half the UK population has money invested in Premium Bonds, you’re likely to be competing against far fewer people if you take part in the Halifax draw. And while the top prizes on offer can’t quite match the dizzy heights of that £1 million offered by NS&I, you’ll be earning interest as well.
It’s all a matter of interest
Imagine someone has £5,000 savings – the minimum required to enter the Halifax draw. If they put that money into Halifax’s five-year fixed rate ISA at 4.4 per cent a year, they would be guaranteed interest of £1,201.15 by the end of that term. And that’s before including any potential winnings from the bank’s lottery scheme.
In comparison, the average saver with £5,000 in Premium Bonds over the same length of time could expect to win just £250 to add to their fund, and would have only around a 1 per cent chance of winning anything over £1,000. So in a straight race there’s really only one winner for the vast majority of savers.
Of course, as most people are unlikely to win a huge jackpot with either savings scheme, it’s well worth doing your research before choosing a product.
Halifax’s savings rates, while generally competitive, are not the best available, so it’s up to you to decide whether the chance of a jackpot is enough to earn your custom.
