Navigating Premium Bond Jackpots and Large Inheritances

Navigating Premium Bond Jackpots: It doesn’t matter if you win the £1 million Premium Bond jackpot or the second-biggest prize of £100,000; getting a large sum of money can change your life.

A windfall can be both exciting and difficult. The thrill fades quickly when you realize how many zeros are now at the end of your bank balance.

That chance could help you reach one of your money goals or keep you on track with your plans to get rich over time. Some of the money may already be set aside for a fancy vacation or a gift for someone you care about.

Leaving everything in cash is one of the worst things you can do. A wealth app called Chip surveyed 500 people and found that 62% of those who had an inheritance in the last five years kept some or all of the money in cash or in a bank or building society account.

“There’s a real risk that people fall foul of inertia – missing out on opportunities to really use the money to its full potential, or risking it losing ‘real-term’ value due to inflation – while they work out their next steps,” comments Gina Silvester from Chip.

If you put your £25,000 gift into a current account that didn’t earn any interest five years ago, it would only be worth £18,750 today because of how much prices have gone up.

If the winner of the £1 million Premium Bond jackpot did the same thing, they would find that their prize had been reduced to about £750,000.

Navigating Premium Bond Jackpots and Large Inheritances

what to do when you get a big windfall

Chip’s poll shows that the average cash gift is £24,583. Six out of ten people got an inheritance of £50,000 or more.

Every month, hundreds of people win prizes worth £50,000 or more on the Premium Bonds. At the moment, two customers get a call from Agent Million telling them they’ve won £1 million, 91 people win £100,000, and 182 people win a £50,000 prize.

Winning the lottery can also change your life. Last week, someone who had a ticket for the EuroMillions £75 million prize got the winning number.

Ian Pickford, partner and head of financial planning at financial services firm Mazars, notes: “As the dust starts to settle and the champagne is put down, it’s imperative people seek the advice of experts and put a long-lasting plan in place. If [a large payout is] managed correctly it can offer generations a lifetime of financial security, but it can also cause family rifts and money troubles down the line.”

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Take your time and don’t worry.

First, don’t freak out or stress out about your fortune. “There’s no need to move quickly; that money won’t go anywhere unless you want it to.” Pickford says, “Take your time to decide what to do and think about what you want to do with that money now and in the future.”

Iain McLeod, who is in charge of St. James’s Place’s private client consultancy (south), agrees. “It will be tempting to spend large sums initially (perhaps on luxury items or property), or to make generous gifts to loved ones or charities. It may be better to ‘pause’ any major decisions for at least six months or more. This will help you to acclimatise to the new found wealth, and consider what is important to you in the long term.”

You could put the money in a high-interest savings account, but don’t leave it there for too long because of the risk of price erosion. Also, be on the lookout for scams.

watch out for scam

McLeod says it might sound strange, but getting a lot of money all of a sudden can leave someone very open to harm. He tells MoneyWeek, “It’s very important to be careful of sophisticated fraud and scams that might target people who have won a lot of money.”

“Inexperience can sometimes lead to decisions you might later regret. Equally, knowing who to trust for advice is difficult. For example, having trusted third parties present at meetings where finances are being discussed can be a good thing to do, but it’s important to consider any conflicts of interest that they have.”

Plan ahead.

Based on how much money you won or got as a gift, you might be able to buy yourself a “little” treat. Like when you buy a car or stay in a fancy hotel.

Then it’s time to make a plan for your money. Silvester says you should think about whether you can pay off any very expensive bills and make sure you have an emergency fund to help with unexpected costs. A good rule of thumb is to keep six months’ worth of living costs in an easy-access savings account.

Now, think about your end goals. Is it helping you pay off your house? If you don’t have a pension because you work for yourself, it’s important to put retirement savings first. Maybe you want to send your kids to a special school or help a family member pay for their rent. It might also be on your dream list to quit your job and get new training as something else.

“When thinking about your financial plan, consider what fits both your goals, but also your family’s. And add a buffer so you have the flexibility to meet changing circumstances as life throws its various curveballs at you,” says Pickford.

Do everything you can to make your money work for you.

It’s important to get the best interest rate possible on cash that you keep on hand. Check out our list of the best rates on savings accounts.

Silvester comments: “If you don’t need the money immediately, or are willing to put it to work towards long-term goals, investing may be the right option for you. Where and how much you invest will be a very personal choice. You’ll need to consider factors like your appetite for risk and what you’re comfortable investing in and your individual circumstances.”

Think about getting cash help.

A financial advisor who has worked with people who have won a lot of money can help you figure out what your top financial goals are.

They can figure out how much money your wealth could make, which can help you choose how much to give to groups or loved ones.

“Getting good advice from an experienced financial advisor can help to avoid mis-steps and to make better, long-term decisions,” says McLeod.

“If you would like to make gifts to charity, an adviser can help you do so in the most tax-efficient way possible. They can also help to spot tax planning opportunities – for example making gifts by contributing to loved ones’ pensions, or overpaying on their mortgages, or even varying an inheritance to accelerate your inheritance tax planning.”

Ask your friends who they think is a good financial adviser, and make sure you know how much they charge. They also have sites where you can find a guide.

Keep your place safe.

According to Pickford, one of the first things he tells clients who have won a lot of money is that they should change their will.

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