Chip Prize Savings Account: A Review. Is it the right choice for you?

By JAMIE HOLMES
11 July 2023

Today the MoneyMarvel team is exploring the Chip Prize Savings Account to figure out whether it's a good place to stash your savings.

Who are Chip?

Chip is a relatively new savings and investments app founded in 2016. Their goal is to help UK Savers build wealth for the long term by optimising the investment funds and savings accounts that they hold their money in.

Despite their recent arrival on the UK saving scene, they're well known for frequently topping charts of the highest paying instant access savings accounts. At the time of writing the Chip Instant Access savings account pays an interest rate of 4.26% AER - very close to the best products on the market.

However, this review is about their Prize Savings Account - a very different account to the standard instant access saver offered by most UK banks.

What is the Prize Savings Account?

The prize savings account was launched in September 2022 as an alternative to a standard interest-bearing savings account. Instead of receiving a fixed interest rate each month your savings will be used to automatically enter you into a prize draw with a chance of winning up to £10,000.

The account in many ways is like an NS&I Premium Bond. Unlike the lottery you don't have to pay anything to enter the prize draw, but instead you forgo your monthly interest in return for the chance of winning.

The exact prizes available to win vary month-by-month, but in July 2023 the following prizes were up for grabs:

• 1x £10,000
• 50x £100
• 100x £50
• 500x £25
• 2,000x £10

How does it work?

Entering

In order to enter the Chip prize draw you'll first have to download the Chip app and open an account. Then simply deposit into your prize savings account (minimum £100 if you want to be entered in the draw) and wait for the next monthly drawing to be held.

The monthly draw

The number of entries you receive into the prize draw is calculated based on the average amount you had saved in the account over the previous month. Each £10 saved will earn you one entry in the draw, with a minimum of at least £100 held (for 10 entries) and a maximum of £85,000 held (for 8,500 entries).

Beyond that there is nothing further you need to do. Prize winners will be automatically notified once the prize draw has been held. Lower value prize amounts will be paid automatically into the account, whilst the £10,000 Grand Prize Winner will need to respond to Chip's notification in order to receive their prize (so do keep an eye on your emails!).

Advantages

• The prize draw costs nothing to enter. You forgo the interest you would have received if you had held your savings elsewhere, but otherwise the account is entirely free.
• There are a number of prizes to win - up to the Grand Prize of £10,000 each month.
• All prize winnings are entirely tax free (unlike savings interest, which is taxable above your Personal Savings Allowance).
• The account is an instant access account - you can move money in and out of it at any time without any notice. Remember that you do need to keep an average of at least £100 in the account to be entered into the following month's prize draw.
• The account is eligible for standard the standard FSCS protection scheme, so your savings are safe even if something happens to Chip.

Disadvantages

• The big one: Chip has not published the prize rate, and does not provide any information on how many valid entries there are into the prize draw each month. This makes it impossible to calculate your chances of winning, and likely means that you'd be able to get a higher average return on your savings elsewhere.
• It's entirely possible that you will win nothing at all each month. Be prepared for your savings to gradually suffer devaluation at the hands of inflation.
• Whilst your savings are protected by FSCS, the prizes you win are not - and they also do not count towards future month's entries. That means you'll need to withdraw your entire balance from the account in order to protect your prize winnings elsewhere.

Alternatives

The most obvious alternative to the Chip Prize Savings Account is NS&I's Premium Bonds. Similar to the Chip account they do not pay an interest rate each month and instead each £1 bond you buy gives you the chance to win a cash prize. Premium Bond winnings are also paid tax-free, a significant benefit to those already paying tax on their other savings interest.

However, unlike the Chip account Premium Bonds do have a published prize rate and an established chance of winning, so it is possible to calculate what kind of returns you might expect from a Premium Bond. Take a look at Money Marvel's online calculator to understand the likely Premium Bond returns.

It's also worth noting that Premium Bonds are issued directly by the UK Government, whereas Chip is a private company. In reality because of the FSCS guarantee scheme your savings are likely equally safe with either option.

Each individual can purchase up to £50,000 in Premium Bonds, and can save up to £85,000 in the Chip Prize Savings Account.

The main downside of Premium Bonds is that they can take some time to sell and get your money back (up to 3 days according to NS&I), so the Chip account may be preferable if you're likely to need very fast access to your cash.

MoneyMarvel's Conclusion

Whilst the Chip Prize Savings Account is an exciting and novel way to hold your savings, it is ultimately very hard to recommend it without more published information on the expected prize rate or chances of winning. Without these key facts it is impossible to know what your expected return on the account would be, and how that compare to other available options.

The average UK Saver will likely receive significantly better returns elsewhere, either by putting their money in a standard Instant Access Saver (including Chip's own option!), or by buying Premium Bonds instead if the chance of winning a larger prize is important.

Potentially the only case where the Chip Prize Saver might make sense is for savers who have already bought out the maximum of £50,000 premium bonds and who are particularly interested in more tax-free returns.

Otherwise, our advice is: avoid this account for now. But we do love to see innovation in the savings space, and can't wait to see what Chip comes up with next!