Premium Bonds let you save money with the chance of winning cash prizes from monthly draws, but are they as straightforward as they seem? Find out in our guide.
Premium Bonds have been around a long time, since 1956 in fact, so they must be pretty good, right?
More than 21 million people hold Premium Bonds, banking their hopes and dreams of scooping up one of the big cash prizes in the monthly draw. But, what are Premium Bonds and are right for you?
Every £1 you hold in a bond is issued a unique number and is entered into monthly prize draws until you cash them in. If one of your unique numbers is chosen, you could win a tax-free prize ranging from £25 to £1 million.
If you buy more than £50,000-worth of Premium Bonds, and a number issued to a Bond exceeding this total won’t be paid. If it’s paid in error, NS&I can reclaim it.
Unlike its namesake, this Bond is bullet-proof. Being backed by HM Treasury it’s fully guaranteed.
Or course, savings are generally safe as up to £85,000 of savings held with individual UK-regulated financial providers are covered by the Financial Services Compensation Scheme.
With Premium Bonds you are not guaranteed any return on your investment, and returns are on average much lower than the interest you could earn on a normal savings account.
Every month, ERNIE (Electronic Random Number Indicator Equipment) picks out winning numbers from all of the bonds, which are published by NS&I.
You have a 34,500 to 1 chance of winning £25 for each £1 you put in. The more you put in, the more chances you have that one of your Bonds will win something.
The prizes are split into three bands:
Higher value (5% of prize fund): Prizes from £5,000 to the £1 million jackpots.
Medium value (5% of prize fund): Prizes from £500 to £1,000.
Lower value (90% of prize fund): Prizes from £25 to £100.
You can buy Premium Bonds directly from NS&I online, over the phone or by post. Each investment must be at least £25.
You need to be at least 16 years old to buy a Bond. If you buy Bonds for an under 16 only their nominated parent or guardian can manage and cash them in.
The best time to buy Bonds at the end of a month. You’ll need to hold them for one full month before being entered into a draw, and want to minimise the amount of time your money isn’t earning interest.
If you’re a winner, you can choose one of three methods of payment:
Post: This is in the form of a warrant, which is like a cheque. You’ll need to take it to your bank and wait for it to clear.
Bank account: You’ll need to confirm which account you want your winnings to get transferred into.
Reinvest: You can top up until you reach the maximum holding of £50,000.
Plans to stop sending prize cheques by post have been scrapped following customer complaints. That said, NS&I does encourage customers to switch to having prizes paid straight into their bank accounts if possible as it’s quicker, more secure and more sustainable.
If you want to change the way you receive your winnings, you can either do so online or by phoning NS&I.
Premium Bonds form part of the holder’s estate upon death. Bonds remain eligible for cash prizes for 12 months after the holder’s death, unless they are cashed in by the executor of the estate or a nominated beneficiary beforehand.
As with any financial product, there are drawbacks and benefits to Premium Bonds. It's up to you to decide whether the pros outweigh the cons.
they don’t count toward your Personal Savings Allowance, as you don’t earn interest on your Bonds
you can withdraw your money at any time
government-backed, so it’s completely safe
there’s no risk to your money as it’s left untouched rather than being reinvested
there’s no minimum length of time you can hold the bonds.
it can be a fun way to earn money
no interest is earned on savings
returns are typically lower than interest earned in a normal savings account
you might never win anything from the prize draw
it can take up to eight days for money to reach your account if you win
you have to wait a full month before you’re eligible to win
Many people are attracted by the ‘lottery effect’ of Premium Bonds, which draws them in and tempts them. They’re good for fun, but perhaps not so great in terms of returns.
So next time you wonder ‘are Premium Bonds worth the investment?’ you can refer to these pros and cons and make your decision.
Although there's a chance you could win big with Premium Bonds, the probability of hitting the jackpot is small.
If you want to generate a more reliable income from your money, you might consider one of the following: