Premium Bonds are run by National Savings & Investments (NS&I), which itself is run by the government. Instead of earning interest, you get the chance to win a tax-free prize of between £25 and £1 million.
Each bond costs £1, so if you invest the minimum amount allowed – £25 – you’ll have 25 bonds that’ll be entered into the monthly prize draws.
Over 21 million people in the UK hold over £78 billion-worth of Premium Bonds, with their money protected by HM Treasury safeguards.
So here’s everything you need to know…
1. Investment limits:
The maximum you can invest in Premium Bonds is £50,000.
As NS&I is backed by the Treasury, this money is completely safe.
2. How to buy:
You can buy Premium Bonds online through the NS&I website, by phone or by post. The minimum investment is £25 a time - this was reduced from £100 on 1 February, 2019.
Did you know? Sir Cuthbert Ackroyd (who later became Lord Mayor of London) bought the first Premium Bond on 1 November 1956. By the end of that first day, £5 million worth had been sold.
3. Keeping it in the family:
Parents and grandparents are able to purchase and manage Premium Bonds for children until they reach the age of 16. Parents or legal guardians can apply online, by phone or by post, while grandparents can apply online or by post.
4. Savings alternative:
Similar to cash ISAs, money made from Premium Bonds is tax-free.
What’s more, this doesn’t count towards your Personal Savings Allowance which allows basic rate taxpayers to earn £1,000 interest tax-free each year. The figure for higher rate taxpayers is £500.
Did you know? Currently, the Premium Bond prize-fund rate is equivalent to an interest rate of 1.40% a year. This means that if you held every single premium bond there is, your winnings would work out at 1.40% of the amount you invested.
5. No notice required to get your cash:
There’s no charge to cash in some or all of your bonds, and you are not required to give any notice.
6. Against the odds:
In a typical draw, each bond has a one in 36 BILLION chance of winning £1 million. The odds of each bond winning ANY prize are better - but still not great - at 24,500 to 1.
Did you know? An ‘Agent Million’ at the NS&I has the responsibility of telling the good news to millionaire winners. According to NS&I, one Agent Million has told over 100 new millionaires about their good fortune.
7. Timing of the draws:
For your bond number to be entered into the prize draw you need to have had it for a full calendar month after the month of purchase. Therefore Bonds bought in June will be entered automatically into the August draw.
8. Number selection:
Each month, prize winners are selected at random by the NS&I’s computer ERNIE (Electronic Random Number Indicator Equipment). Bond numbers can vary between 8-11 digits long, but ERNIE has been programmed to give each number a separate and equal chance of winning.
Did you know? ERNIE was developed by one of the original Bletchley Park code breakers. Since its creation in 1956, the time it takes ERNIE to generate a number has fallen from 52 days to two and a half hours. NS&I revealed that over the years ERNIE – who resides in Blackpool – has developed a celebrity-like status and receives yearly Valentine's and Christmas cards.
9. 24-hour access:
Your Premium Bonds can be managed online, as well as through NS&I’s Prize Checker app. NS&I will also send you a Bond record every time you invest. This information is also available online if you opt to go paperless.
What are the drawbacks to Premium Bonds?
While there are advantages to investing in Premium Bonds, it’s worth taking into account other factors which could possibly deter you.
Premium Bonds will not provide you with a regular income nor will they guarantee a return on your cash. The odds of winning a prize speak for themselves so you’d have to be prepared that you might not win anything at all.
Equally, the purchasing power of your cash could be steadily eroded over the years by inflation (the rising cost of living).
And unless you are buying for you child or grandchild, Premium Bonds can’t be purchased as gifts.
Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.