What are Premium Bonds prizes?
Premium bonds are a popular way to save, but unlike other methods of saving, they don’t pay any interest on the money you deposit. Instead, they offer you the chance of winning a prize each month with a maximum value of £1 million.
How do Premium Bonds work?
Premium Bonds are run by National Savings & Investments, which is government-backed. This means your money is very secure.
The minimum amount you can put into Premium Bonds is £25. Each bond costs £1 and there is no cost and no commission. The maximum you can save with Premium Bonds is £50,000.
Unlike a traditional savings account, you do not earn any interest. Instead, each bond has a number and that number is entered in a monthly prize draw.
A computer programme called Ernie (Electronic Random Number Indicator Equipment) randomly selects the winners. This means that in theory, you could win more than once, or not at all. Unlike a lottery ticket, your bonds stay in the Premium Bonds account and are entered into the draw every month, regardless of how long you have held them. In theory, each bond has an equal chance of winning a prize every month.
How are Premium Bond prizes shared out?
The monthly draw has a number of different prize bands: higher, medium and lower.
The higher value band has two £1 million jackpots each month, plus further prizes between £5,000 and £100,000.
The medium value band offers prizes ranging from £500 to £1,000
The lower band prizes are from £25 to £100
You are not guaranteed to win a prize, however, and even if you hold £50,000 of bonds – the maximum permitted – there is still a chance you will not win anything.
What are the advantages of Premium Bonds?
Premium Bonds are easy-access so you can always get hold of your money when you need it, without giving notice.
The great benefit of Premium Bonds is that your cash is very safe – Premium Bonds are backed by the government and so there is no risk to your capital.
The other advantage is that you may win a prize. This can be relatively small – around £25 – or it can be significant. The most you can win on your Premium Bond is the £1 million jackpot. All the prizes are free of income tax and capital gains tax (CGT).
What are the drawbacks of Premium Bonds?
One of the key drawbacks of Premium Bonds is that they do not pay any interest and there is no guarantee that you will win any of the prizes.
In addition, they do not offer any protection against inflation. Even if inflation is just 2.3% at present, this means the value of the money in Premium Bonds is eroded – unless you win enough prizes to stay ahead of inflation. They are also not suitable if you are looking for a guaranteed income. If you are just looking for a safe home for your money, and a bit of fun, they could be a consideration.
Applying for Premium Bonds – how does it work?
It is very simple to apply for a Premium Bond. You can fill in a form and post it, or you can set up an online or phone account.
You can buy Premium Bonds for children too if they are under 16 – a parent or guardian will need to manage them until they reach the age of 16.
Once you have bought your first Premium Bonds, you can also buy more Bonds by a transfer online from your nominated bank account.
When is the best time to buy Premium Bonds?
In order to be entered into the prize draw, you need to have held your Premium Bonds for a full calendar month.
In effect, the best time to buy Premium Bonds is the last week of a calendar month. So if you buy bonds the last week of January, they will be entered into the prize draw in March.
How do I cash in Premium Bonds?
It is very simple to cash in your Premium Bonds. You decide how much you want to transfer to your bank account, and your bonds are sold to raise that sum. It will be transferred to your bank account within two to five days.
You can cash in some or all of your Bonds at any time.
What are the chances of winning premium bonds?
The chances of winning are relatively low, but if you are happy to keep some of your savings in Premium Bonds with no risk to the money and a small chance of winning a prize, then it could be one option for you.
According to NS&I, the odds of winning are 22,000 to 1 (for every £1 Bond) and the annual prize fund rate is 4%. You can buy a maximum of £50,000 worth of bonds and you can reinvest your winnings unless you have the £50,000 maximum holding.
The more Premium Bonds you hold, the greater your chance of winning, statistically speaking. However, you may not win anything, so if you are looking for regular or guaranteed savings interest you would be better off with a traditional savings account.