Premium bonds are one of the UK’s biggest savings products, with 21.1 million bondholders (nearly a third of the UK population) holding over 113 billion eligible £1 bond numbers between them. Our guide will cover everything you need to know about them and the big question – are premium bonds worth investing in?
What are premium bonds?
Premium bonds are a savings account from National Savings & Investments (NS&I) which offers you the chance to be entered into a monthly draw where you can win between £25 and £1 million tax-free instead of paying interest like other saving accounts.
How do premium bonds work?
Simply put they work like a lottery, for every £1 you invest you get a unique bond number, these numbers are put into a computer called Ernie (Electronic Random Number Indicator Equipment) which will randomly draw winners each month. You will need to invest at least £25 and can keep buying bond numbers until you reach the maximum holding level of £50,000. The more bond numbers you have the greater your chances of winning.
Example: If you save £100 you will get 100 bond numbers.
Any prizes you win are free from capital gains and UK income tax. There is also no interest earned with premium bonds, instead, the interest rate will fund the monthly prize draws. Remember that inflation can also reduce the value of your money over time.
How do I buy premium bonds?
You can buy them directly through NS&I online here, by filling out an application and sending it by post, or by calling them on 08085 007 007
You can buy them for yourself or on behalf of your child/grandchild (under 16) if you’re a parent, legal guardian, grandparent, or great-grandparent.
Are they safe during a recession?
Premium bonds are one of the safest forms of savings. They are sold by National Savings & Investments (NS&I) which the government owns, so you don’t have to worry about losing your money. They are not linked to the stock market so when everything is crashing premium bonds remain unaffected.
What are the odds of winning?
According to the NS&I website, the odds of winning are 24,500 to 1 (for every £1 bond). However, there are multiple prizes to be won each month. For example, you could win £25 and £50,000 both in the same month, therefore these calculations shouldn’t be relied upon.
There are 2 lucky winners that win the £1 million prize every month, NS&I says that the chances of winning the £1 million over the course of a year or 12 monthly draws are one in 41,219,096 if you have £100 in bonds. If you have £1,000 invested, the odds of winning are one in 4,117,912, and if you have £50,000 invested which is the maximum holdings your chances will increase to one in 81,458.
12 people holding £1,000 or less have scooped the £1 million jackpot prize, with the lowest holding being £17 to win £1 million.
Are premium bonds right for me?
Bonds may be a good investment for you if:
- You have more than £25 to invest
- You want to be in with the chance of winning tax-free cash prizes up to £1m every month
- You’re a parent, grandparent, or great-grandparent wanting to buy a savings gift for a child under 16
Premium bonds may not be for you if:
- You’re wanting guaranteed returns
- You’re looking for a regular income
- Worried about inflation and the impact on your savings
Want more information about premium bonds? Get in touch with our sister company Swift Accountants and the team will happily answer any further questions you may have!
Or, if you don’t think premium bonds are for you, why not check if you could be eligible for an average £2,500 tax refund here