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Are Premium Bonds a safe investment or waste of time?

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Written by Dom James, Financial Content Writer

17 April 2020

Premium Bonds let you save money with the chance of winning cash prizes from monthly draws, but are they as straightforward as they seem? Here is how they work.

What are Premium Bonds?

They are a savings scheme provided by NS&I (National Savings and Investments) that lets you pay in anything from £25 up to £50,000.

Every £1 you invest into a bond is given a unique number which is entered into a monthly prize draw. If one of your unique numbers is chosen, you could win a tax free prize ranging from £25 to £1 million.

Your bond's unique number is re-entered into each subsequent draw until you decide to cash them in.

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.

How does the prize draw work?

Every month ERNIE (Electronic Random Number Indicator Equipment) picks out winning numbers from all of the bonds.

You have a 26,000 to 1 chance of winning for each £1 you put in. The more you put in, the higher your chance of winning.

The prizes are split into three bands:

  • Higher value (5% of prize fund): Prizes include £5,000, £10,000, £25,000, £50,000, £100,000 and £1 million jackpots.

  • Medium value (5% of prize fund): Prizes include £500 and £1,000 jackpots.

  • Lower value (90% of prize fund): Prizes include £25, £50 and £100 jackpots.

Visit the NS&I website for a detailed breakdown of how each band works

What are the benefits?

  • Tax free savings.

  • You can withdraw your money at any time.

  • They guarantee that all of your money is completely safe because NS&I is backed by HM Treasury.

  • There is no risk to your money as it is left untouched; the prize draw is made up of the interest that would have been paid out to everyone in the prize fund.

  • There is no minimum length of time you must hold the bonds, meaning you can cash them in any time.

Are there any drawbacks?

  • You don't earn any interest on any money you save.

  • You may never win anything from the prize draw.

  • It can take up to 8 days to get the money into your account.

How can you buy Premium Bonds?

You can buy them directly from NS&I online, over the phone or by post.

You need to be at least 16 years old to buy a premium bond, but parents or grandparents can buy them for anyone under 16.

How do you get your winnings?

You can choose one of three methods of payment:

  1. Paid by post: This is the default way you will be paid. This is in the form of a warrant, which is like a cheque, that you will need to take to your bank and wait to clear.

  2. Paid to your bank account: You need to register and log in to NS&I's website to choose the account you want your winnings to get transferred to.

  3. Reinvest into more bonds: You can do this up to the maximum holding of £50,000.

What are the alternatives?

Although there's a chance you could win big with Premium Bonds, the probability of hitting the jackpot is small.

To make sure your money is growing, you could invest in a savings account instead.

Here is how to choose the best account to help you grow your money

Are Premium Bonds protected?

Yes, they are backed by HM Treasury which means your money is guaranteed to be safe.

Maximise the value of your savings by hunting down the best rates available.

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