Boom in savings prize draws as traditional savings rates plummet

Prize draws are becoming the norm for savers, but is that really a good thing?

Savers who like a bit of a gamble have yet another account to consider.

The latest example comes from Nationwide Building Society which has launched a Mutual Reward Bond. It’s an 18-month bond that pays a rate of 0.5% AER on balances of up to £10,000.

I know, the sort of rate that makes your heart skip a beat from the excitement.

But the selling point of the Mutual Reward Bond isn’t really anything to do with the bog standard rate of interest, and everything to with the chance of winning a prize.

Nationwide will put together a prize fund worth the equivalent of 0.5% of qualifying balances in Mutual Reward Bonds, to cover a host of £10,000 prizes.

So the more money people put in these bonds, the more prizes there will be overall.

You’ll get one entry for every £100 saved ‒ according to the mutual if you have the full £10,000 saved in your bond, you’ll have at least a one-in-200 chance of winning

The draw will happen in February next year, with winners receiving their prizes paid directly into your Nationwide account or by cheque.

Importantly, the bond is only open to existing Nationwide customers.

Do you feel lucky, punter?

It’s been something of a theme of late at Nationwide: the prize draw for savers. 

It started with the Start to Save account back in February of this year, which was aimed at people with very small amounts of savings.

The idea was that you put in up to £100 a month, every month, and on top of the 1% rate of interest there’s also the chance to win a £100 prize in one of the four draws held each year.

This was followed a month later by an ISA prize draw, which encouraged savers to increase the value of their Nationwide ISA by at least £100 before the end of April to enter a competition for a top prize of £20,000 ‒ the full ISA allowance.

And it worked ‒ according to Nationwide more than 650,000 members met the ISA prize draw eligibility requirements by topping up their ISA balance, an increase of 22% on the number of savers who increased their balance in the same period the year before. 

It’s not just Nationwide

The nation’s biggest building society isn’t the only one leaning into the idea of prize draws in order to encourage savers to keep their cash with them though.

The Family Building Society for example launched Windfall Bonds earlier this month, which pay a rate of 0.1% interest (don’t all rush at once) on bonds which cost at least £10,000 a pop, but with the added incentive of a monthly prize draw with a top prize of up to £50,000.

Halifax has run a prize draw for some time now too, with three top prizes of £100,000 open to savers each month who manage to keep balances of £5,000 or more in qualifying accounts, while Hanley Economic Building Society runs a Potteries Prize Saver with prize draws offering £500 to winners.

And it’s worth remembering that these launches have come against a backdrop of NS&I having to slash the prize fund on its Premium Bonds ‒ the trendsetter when it comes to prize-paying savings accounts ‒ as too many savers were piling in.

Clearly there is a market for savers who fancy the chance of winning a prize with their savings pots, and providers are waking up to it.

I don’t want to play the odds

It’s a miserable situation we find ourselves in, where savers effectively have to hope their numbers come up in order to get anything back on their money.

We have had more than a decade of low base rate now, so meagre rates of interest on savings accounts are not exactly new.

But rarely have things seemed so bleak for savers who simply want a straightforward, respectable return on their cash.

It’s not just that savings rates on dedicated savings accounts are so pitiful.

In recent years, current accounts have provided a decent alternative, delivering rates of up to 5% on modest balances, but those have now disappeared at a rate of knots, leaving savers with even fewer options.

As a result, if you want any sort of return on the money you actually put away each month you have to roll the dice, whether that’s by hoping you get lucky with one of these prize draws, or going the whole hog by chancing your arm with a riskier option like peer-to-peer or outright investing, which could obviously result in you losing money.

It leaves me incredibly uncomfortable that we are effectively normalising the idea that luck is now going to play a bigger part in getting something back from your savings.

It was one thing when it was Premium Bonds, given all of the money saved with NS&I is guaranteed by the Government, but that isn’t the case with other providers.