What Are Premium Bonds?

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By Cai Bradley
Updated on Wednesday 8 April 2020

Couple happy with premium bonds winnings

Premium Bonds were introduced in 1956 as an investment product and are now owned by around 23 million people in the UK.

While they may be an authentic way of saving, there are pros and cons that you should know about before putting your money on the table.

Our guide explains what premium bonds are, how they work, whether they’re worth it and how you can buy them. 

NS&I Premium Bonds explained

A Premium Bond is an investment product offered by the government-backed National Savings and Investments (NS&I).

It is unique in that you do not earn interest or dividends as you would with most other forms of investments, but you’re instead entered into a monthly prize-draw with the winners taking home anything between £25 and £1million, tax-free.

Of course, you can never be sure how much you’ll make from the investment (if anything) and you’re not guaranteed any returns, as you are with a standard Cash ISA for example, but the high-end prizes offer a far greater reward, IF you are lucky enough to win.  

Read more: How to Budget – Allocating Your Income to Save Money

How do Premium Bonds work?

You begin by investing cash to buy a certain amount of bonds; for every £1 that you invest, you receive a unique bond number, meaning that if you invest £300, you will have 300 bonds, for example.

Each bond number is essentially a prize-draw entry and a chance to win up to £1million, but you must hold it for a full month before it can be included within a draw.

The more money you invest, the more bonds you will have and the more likely you are to win a prize. It’s similar to the lottery in that sense – you can buy more tickets to increase your chances of winning, but there’s no guarantee that you ever will. 

Here are some quick-fire answers to frequently asked questions on how Premium Bonds work:

How much can you invest in Premium Bonds? You must invest at least £25 and no more than £50,000.

How many Premium Bonds can you buy? The maximum amount of Premium Bonds you can own is 50,000.

How much are Premium Bonds? You get one bond number for every £1 you invest.

Can you invest in Premium Bonds for children? You can purchase Premium Bonds for yourself, your children, your grandchildren or your great-grandchildren.

When can you start purchasing Premium Bonds? You are required to be over the age of 16 to purchase Premium Bonds for yourself.

When are Premium Bonds drawn each month? The Premium Bond draw takes place on the 1st of every month.

How can I check if my Premium Bonds have won?

To find out if you’ve won, you simply need to enter your numbers on the NS&I Premium Bonds checker.

Note that while the draw is made on the 1st of every month, results are not usually posted on the website until the 3rd of the month.

The Premium Bond prizes are:

  • £25
  • £50
  • £100
  • £500
  • £1,000
  • £5,000
  • £10,000
  • £25,000
  • £50,000
  • £100,000
  • £1,000,000

There are two millionaires made every month, with millions more winning the lower value prizes.

When is the best time to buy Premium Bonds?

There is no best time to buy Premium Bonds, but bear in mind that you must hold the bonds for a full month before they’re eligible to be entered into the prize-draw. For example, if you buy bonds at any time in February, they will be eligible to win from April onwards.

Premium Bonds are suited to certain people, including those who:

  • Are enticed by having the chance to win tax-free prizes in a monthly draw.
  • Want to invest for their children, grandchildren, or great-grandchildren.
  • Have spare cash – at least £25 – that they want to invest outside of regular savings accounts.

 They are probably not the right investment for you if you:

  • Are concerned about the effect of inflation on your savings.
  • Are looking for a regular income or interest.
  • Want guaranteed returns.

Read more: The Different Types of Savings Accounts in the UK

Are Premium Bonds worth it?

It’s difficult to tell you whether or not Premium Bonds are worth it, as it would be a lot easier to tell in hindsight.

For example, if you ask someone who has won £100,000 in their first year of purchasing bonds, they’ll tell you that Premium Bonds are absolutely worth it. If you ask someone who has not won a single prize and has held £50,000 of their own money in bonds for 5+ years (without earning any sort of interest), then they would inevitably tell you that they’re not worth it.

Your chances of winning the very best prizes are very slim, so it’s important that you do not buy bonds with the expectation of ending up hundreds of thousands of pounds richer. It could happen, but it probably will not.

If you hold Premium Bonds for years and don’t win any major prizes, it’s unlikely that your return will beat inflation, meaning that you will have essentially missed out on valuable monetary growth.

All the money you put into the Premium Bonds are safe and secure though, so it is a genuine way of investing a percentage of your income if you feel it is right for you – after all, there’s no doubt that the millionaire winners will tell you that it’s worth it.

Premium Bonds odds: What are your chances of winning?

Your chances of winning a prize in the Premium Bonds monthly draw are very slim, and with the number of prizes being reduced in May 2020, the possibility of winning is only being shortened. From May 2020:

  • Each individual £1 has a one-in-26,000 chance of winning any sort of prize.
  • The odds of winning the maximum prize of £1,000,000 (per £1 bond) is over 40 billion-to-one.

To put the above statistics in perspective, your chances of being struck by lightning in the UK is one-in-1.2 million and the odds on you dying from being hit by a falling plane part is one-in-10 million.

Of course, you can increase your chances of winning by buying more bonds, but the odds are still stacked against you.

Read more: Premium Bonds - Odds of Winning Slashed in May 2020

How do you purchase Premium Bonds?

We’ve gathered how much you can invest in Premium Bonds, but how do you go about doing it?

You can either buy Premium Bonds by registering on the NS&I website or by calling the helpline on 08085 500 000.

If you do so online, you will need to provide a range of personal details if you have not previously registered with NS&I. 

How to cash in Premium Bonds

You are able to cash in or withdraw your Premium Bonds at any time, without incurring fees or penalty charges.

You can do so online via the website if you’re a registered member, or you can do so by posting a ‘Cashing In’ form to NS&I (available to be downloaded online or requested via 08085 007 007) .  

It can take up to eight working days for the money to land in your bank account if you choose to cash in, but you also have the option of leaving it until the next draw has been done.

To summarise, your money is always secure if you invest in Premium Bonds, as they are fully backed by the government, but the chances of you winning a significant sum of money is very slim. That being said, if you win, they could be the best decision you ever made.

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