Prize-linked savings
Rules, protection and tax below are for China.
What it is
A savings product where the interest the provider would have paid is pooled into a prize fund and handed out by lottery. Your money is not at risk in the draw: you keep every unit you bought and can cash them in at any time. What you give up is the certainty of interest.
The prize fund is set as an annual rate on the whole pool, so on average savers earn roughly that rate. The average hides a very lopsided reality: a few people win large prizes and most people, most months, win nothing. Someone with a small holding can go years without a single prize.
The UK's Premium Bonds are the best-known version, run by the government's savings bank, which is why they carry a full state guarantee there.
How it works
- You buy units, usually in small denominations, up to a maximum holding.
- Each unit is one entry in every draw once it has been held for a qualifying period.
- Prizes range from small fixed sums to a few very large ones, drawn at random.
- You cash units in whenever you like and get exactly what you paid.
The honest pros and cons
For
- Your money is never at risk in the draw, and in the UK it carries a government guarantee.
- Prizes are often tax free, which matters if your other savings interest is taxed.
- You can take the money out at any time.
Against
- Most months you win nothing, and small holdings can go years without a prize.
- The average return is usually below a good savings account, and your money loses ground to inflation.
- The chance of a large prize is tiny; treating it as an investment plan is wishful thinking.
Getting it in China
not researchedWherever you are
- Check the current prize rate against the best easy-access savings rate; that gap is the price of the lottery.
- Decide how much of your savings you are happy to have earning nothing in a bad run.
- Buy directly from the provider, keep the holding number, and check for unclaimed prizes now and then.
Go deeper
Also called
premium bonds, lottery-linked savings, prize savings account
Often confused with
- Government bond: A loan to a government that pays interest and returns your money on a set date, called its maturity.
- Savings account: Money kept at a bank that pays interest and can be withdrawn at any time.