Premium bond prize rates got cut twice in 2024, and started 2025 with yet another cut. Meanwhile Cash ISAs have seen record subscriptions, with rates remaining steady in the face of central bank cuts.
But which product could be best for savers in 2025?
This article isn’t personal advice. If you’re not sure an action is right for you, ask for advice. Remember, ISA and tax rules can change, and benefits depend on individual circumstances.
Premium bonds – three prize cuts, more to come?
Between November and January alone, the premium bond rate has been cut three times, going from 4.4% down to 4%. But most savers will actually be getting even less than this.
Prize fund rate (tax-free)
With further base interest rate cuts from the Bank of England on the cards in 2025, and a 0.25% cut potentially just days away, markets expect to see these rates drop even further throughout the year.
With the odds lengthening since September 2023, the chance to win the jackpot of £1mn is getting smaller and smaller.
Throughout 2024, more than five billion bonds have been bought,(at £1 each), so each bond’s odds of winning the jackpot are now one in 64 billion.
The annual prize rate of 4% is still a decent return, but because of how the prizes are paid, the average bondholder won’t win near 4% of their pot.
Most months, they’ll win nothing.
And when you take inflation into account, your bonds could be losing you money over time instead.
The chance to win big will always be alluring, 17 children won £100,000 in 2024. But the chances are slim, and you could be getting a better return in a Cash ISA.
Cash ISAs record subscriptions – a better way to save?
Just like premium bonds a Cash ISA is tax free, while also paying regular interest.
It’s a savings account which lets you save up to £20,000 each tax year as part of your overall ISA allowance, and all interest is paid tax-free.
And they’ve been surging in popularity.
In 2022/23, 7.9mn Cash ISAs were paid into – a rise of 11% on the previous year. Over £41bn was added to Cash ISAs in 2022/23, up from £30.9bn the year before – a rise of 34.7%.
With inflation at 2.5% and easy access rates as high as 4.55% with HL’s Cash ISA, it’s offering savers a tax-free return ahead of inflation. And you don’t have any risk that a lack of luck will leave you out of pocket.
Although bear in mind, these rates are subject to change and can be variable.
Average Cash ISA rate
If you’re looking for the best Cash ISA rates, it’s always worth seeing what’s available from smaller banks and building societies. That’s where you’ll often find some of the best deals.
A Cash ISA savings platform, like HL’s Cash ISA, brings together some great rates from smaller banks and building societies, all through one easy-to-use online account.
With an HL Cash ISA, you can find what suits you from both easy access or fixed rates without having to shop around. A benefit of a fixed rate can give you a guaranteed return of interest over the longer term.
But before you choose a fixed rate, think about when you need access to your savings. It’s important to make sure you have enough cash set aside in easy-access savings for your emergency fund.
Remember, ISA and tax rules can change, and benefits depend on individual circumstances. Fixed-rate products don’t usually let you withdraw your savings before the term ends.
So, what should savers choose?
The allure of winning a big prize might tip the scales in favour of premium bonds – it’s hard to completely ignore the chance to win, however small that chance might be.
For others, a Cash ISA offers a much more reliable return than premium bonds, along with the shared tax benefits, and could tip the balance back towards the ISA wrapper.
Truth is, there’s no right answer – just the one that works for you. And there’s nothing stopping you from using both, especially if you’ve already used your ISA allowance.
And for those that have maximised their ISA allowance or want quicker access to their money without it losing ISA status, might opt for a savings account. With competitive rates currently well above inflation, a savings account, like Active Savings, could be the ideal place for any other savings, like your emergency pot.
And, currently you could get cashback when you open a new savings account. Terms apply.
The Active Savings account and the HL Cash ISA are provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).