Premium Bonds - A Worthwhile Investment or a Waste of Time?
Find out exactly what premium bonds are and whether they’re worth investing in.
What is a premium bond?
A premium bond is effectively a savings account from NS&I (National Savings and Investments), into which you can deposit between £100 and £30,000.
What makes premium bonds different to standard savings accounts is that instead of earning interest on your invested money, you enter a monthly prize draw, with the chance of winning between £25 and £1million.
The chance of winning a £1million jackpot has made premium bonds hugely popular with UK savers, ever since they were first introduced in 1956. But just how likely you are to win big with these bonds, or indeed win anything at all, is worth questioning.
How do they work?
If you open a premium bond account you are able to invest between £100 and £30,000. In return you’ll receive the equivalent amount in bonds. For example, if you invest £100, you would receive 100 £1 bonds.
You can buy bonds online from NS&I over the phone, at the Post Office, or with a regular monthly payment by standing order. Anyone over the age of 16 can buy them, or they can be purchased by parents or grandparents for those aged under 16.
The bonds each come with a unique number and are put into a prize draw a month after you’ve bought them. They will be re-entered in each subsequent draw until you decide to cash them in.
What are the benefits of investing in a premium bond?
In times of banking instability, you may be comforted to know that investing your money in a premium bond ensures that your money (up to the £30,000 maximum investment) is completely safe. This is because NS&I is backed by HM Treasury. Also, your capital itself is not gambled in the prize draw - only the interest that you might have earned on that capital.
Another thing worth noting is that there is no minimum length of time that you must hold the bonds. You can cash them in any time you like from the time you invest, although new bonds can’t be cashed in for a month after they are first purchased. Also, it will take up to 8 days to withdraw the money after you have decided to cash in.
If you do win a draw, any prize money (from £25 to £1million) will benefit from tax-free status. You may opt to re-enter your winnings into the draw in the hope of winning even more, an idea which is supposed to imitate the compound interest you would get on a standard savings account (the interest earned upon interest over a year).
What’s the catch?
Unfortunately, the many catches of investing in a premium bond arguably outweigh the benefits. Firstly, it’s worth considering exactly how likely you are to win in the monthly prize draws.
Of an average 40 billion bonds entered in the prize draw each month, the prize ratio works as follows:
Around 1 million bonds are awarded £25 prizes
- Around 20,000 bonds are awarded £50 or £100 prizes
- Around 2,700 bonds are awarded £500 to £1million prizes
- 1 bond is awarded a £1million prize
This means that your chances of winning the top £1million prize are about 40 billion to 1, odds that make a jackpot win at the National Lottery seem a sure bet in comparison (around 14 million to 1).
Another thing that should be taken into account is that although your invested capital is safe in a premium bond, inflation means the value of that money will go down over time – and with no interest earned to offset that loss of value you’ll effectively end up with less than you started with.
The NS&I refer to any payouts as ‘wins’, the lure of which can be very attractive to those wanting to earn some money back on what they invest. However you are likely to win less than the interest earned on a standard savings account, which could be around 2-3%, so you may be much better off investing your money in a top savings account or tax-free ISA instead.
These will enable you to earn money on what you invest and will pay you a better return than the average you will get back from premium bond wins. You could even think of the interest paid on your savings as a ‘win’ in itself – and one that is guaranteed to be paid out to you on a regular basis.
The premium bonds are described on the NS&I site as ‘an investment which offers the fun and excitement of a chance of a big win.’ However you should remember that premium bonds are government-backed products that help to generate government funds, so it is understandable the NS&I would want to sell them to the public in this way.
In general, premium bonds aren’t really worth considering in terms of a realistic return on your money. Although there is a chance that you could win big, this chance is negligible at best.
If you are a higher-rate taxpayer and have already used up your tax-free ISA allowance, perhaps these bonds could suit you – if the chance to win prize money is more important to you than earning a guaranteed return on your money. But for the majority of savers who want or need to earn interest, a top-paying savings account is likely to be a better option to take.
In this way, premium bonds should be seen not as a viable savings account or investment, but as a way to forego earning interest in favour of gambling that interest on the chance of winning money.
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Responses (19)
I have had 20 Premium bonds since they started I am now 75 years and have never won a penny, so what this article is saying is spot on 40million to one odds says why we have little chance. I will still leave them in. I have had the best growth from ISA,s but you have to take the risk. Over time they rise in value I find.
if you can bye ?100s worth then cashin your ?20.
I need a strong brandy
that guy has waited 75 years .....take your money and buy a strong brandy
I do understand that not cashing in the bonds! I bought £10 worth in 1978, thinking it was an investment account. I am a nurse and that was my overtime funds. I have never won a penny! Yet, I am told of people who have won small sums more than once.
If you can afford to leave your money in bonds that's fine because your money is safe,,. But and I say again But,,.your chance of winning a big prize in bonds at 40billion to 1 to coin a well known saying you have!nt got a dogs CHANCE, .
Do the maths. Own 1000 bonds and your chances are 40million to 1. Own 4000 bonds and it's 10million to 1. Better than the lottery and you still have your stake for the next draw. If you don't win, buy more!
Interesting article .
But are they really worth a gamble ?
The chance of winning phrase '41 billion to one' assumes you only hold one bond, so is very pessimistic. Assuming a person held the maximum holding of 30k, the odds of winning the jackpot would be 41 billion divided by 30,000. So, the odds would become 1,366,666:1 (just over one and a third million to one) - much better than 41 billion to one.
Also, as there is currently 41 billion invested in PB's between 22 million people collectively, this means the average holding is 41 billion divided by 22 million, which comes out to 1863 PB's as the average number of PB's to each person. Therefore, in round figures, unless you're investing £2000 or more in PB's, you might as well invest in a bank account, as if you hold less than the average number, you will on average, have less than average luck. So, in my opinion, anyone looking for a flutter on the Premium Bonds needs to be putting in £2k or more.
I might have the maths wrong but isn't it 41billion - 30000? ie still c 41 bbillion
It's 41 billion / 30,000
It seems to me the only winners are the gov, dont waste your money on these bonds, get a good savings acc, or buy gold.
Don't give Corrupt.Gov. ANYTHING !
They rob us all enough as it is !
Given that interest on savings accounts is derisory, and your capital is safe in PB's, I don't think they're that bad a deal.
My wife bought a single £1.00 Premium bond on 15th. August 1958 at London's Euston Rd. Post Office, without a single win up to date. Can anyone beat that?
Well , I've never had any , and to date have won nothing !
My late father bought £5,000 in bonds and in the first draw he got £1,000 and two months later £100. He died about four years later and won the month after he died and then just before they had to be cashed.
Mum bought 30,000 for my boys last month and won immediately.
£500 a month, bets sod all from a bank!
I invested 30,000 four months ago and have won 2 lots of £25 for three months in a row (ie, every month they have been eligible for a prize, £150 in total). It is exciting to think that each month I may get an email from my good friend ERNIE alerting me to another win. Of course, I would have to keep winning at this rate to match a gross 3% interest rate, but one substantial win would do a lot better than that and it's much better than the Lottery as I don't lose my stake!
Ernie has continued to come up with good news for me. I have now won FIVE months in a row, 2 x £25 on four occasions and 4 x £25 on the other. By putting the winnings int a 2.9% (one year) savaings plan, this is matching the better interest rates and also keeps me in with a chance of winning a much bigger prize.
I can beat that Tallin, my grandmother bought me a pound premium bond in march 1957 when i was born and ive never won anything either.....ps, also a pound was worth a lot more than it is now!
Don't forget the bonds are better than the lottery ! With the lottery you have abet then you lose your money !! It does not go into the lottery again and again and again and you can still get your mone back !!!!! Premium bonds are for me !!!!
Tony
We just started with 30k 3 months ago and won 150 quid so far
C
and of course, if you win early on in the financial year, you can then reinvest in a savings account and earn additional interest
I keep £18000 in bonds and won a few £25 prizes last year totalling £225. Knocking at the big prize door is how I view it.
I agree! And welcome to the Forum, alan.
I have recently found a premium savings bond for £1.00 which my parents took out for me in 1958 shortly after I was born. I guess at the time that was a sensible thing to do, rather like a childs trust fund now, and £1.00 then is worth about £20.00 in todays money, although I'm sure it represented a bigger value then for them. Anyway, 54 years down the line...........nothing! If they had invested £1.00 in a savings account for me when I was aged 1 year I'm certain it would be worth more than £20.00 now, especially with the years of high interest rates.............oh well! maybe I will have a win before I'm 85!!
My Husband and I do not have the full amount allowed, however, we have won small amounts most months - having said that - bet we won't this month ! BUT is there anyone on this blog or someone you may know who has actually had a very large win ? I would love to know if there is hope of that happening......by wantalot
I retired a little while ago and the staff i used to work with won the million a few months after I left. How gutted was I just goes to show you have to be in it to win it
ooooh...I'm prepared to be patient a little longer then - sorry you missed out there though - my sort of luck too ! ! oh..and I did win again that month but nothing I could retire on. What am I like? I,m already retired!! wantalot
It does seem that my £30000 investment is becoming a waste of money. I now seem to regularly miss months, and the wins are generally £25. When I first bought my bonds, I was winning regularly £50 and £100, even £5000, but that seems a long time ago. I am now considering a more lucrative investment.
In 1979 I held the 13 bonds I'd had since birth 11 years earlier. I won £1000. In the early 90's when the prize fund was bigger I was averaging 11% return (tax free of course), and just this last few months whilst we're between houses a £60k chunk of our 'deposit' has been returning an average of £60/mth which beats the 1% gross rate of interest in a bank and also still gives us that 60,000 in 40 billion = 1.5 in 1 million chance of winning the big one, quite a lot better odds than the lottery and the comment above would have you believe. If you don't win, buy some more bonds... it's not like you're really spending it! Also, don't forget that once your £2 on the lottery has had it's chance and lost, it's gone. Not so with premium bonds as you can just wait for you chance the following month at no real cost
I invested 2,000 pounds in premium bonds and have won over double the investement... If you don't win, cash in and re-invest.
the rate for calculating prizes is 1.5% which makes them highly competitive against most instant access savings accounts this article is badly flawed comparing with the lottery where the stake is lost a £1 bond is entered indefinitely and is therefore massively better odds than the lottery at 24,000 to one every month until cashed in
obviously you forego a guaranteed but currently pathetic rate of interest but in return you get the chance of receiving from 0% to 1000000%
my personal experience over 9 years is an annual equivalent of just over 8% which is well above any high street rate and nearly all long term investments plus the capital is 100% safe and instantly accessible and tax free
The National Lottery being " a sure bet in comparison" what about the fact you don`t get your stake back if it`s not ?? J W
I've won over £1700 over 10yrs with a holding of £8000 bonds. the biggest win being £1000 back in 2002. All bonds have been automatically reinvested so my holding is now £9700. I have from time to time been looking to move them to a savings account or ISA, but rates are abysmal so I've left them in for now. I don't know if the money would have been better off in a savings account or not over the same period, but fortunatley it's money I don't need to access right now, so I'm happy to continue gambling!
