The Complete Guide To Premium Bonds & Whether You Should Invest

Premium Bonds Summary

Premium Bonds are a savings product offered by the UK government’s National Savings and Investments (NS&I) agency. They are essentially a type of lottery, where bondholders are entered into a monthly prize draw to win tax-free prizes ranging from £25 to the top prize of £1 million. Bondholders do not earn interest on their investments, but they have the chance to win prizes through the monthly prize draw.

Premium Bonds were first introduced in 1956 by the then Chancellor of the Exchequer Harold Macmillan, with the goal of providing a savings product that was accessible to all UK residents and offered an alternative to traditional savings accounts. Since then, they have become a popular choice for many UK savers, with over 21 million people currently holding over £100 billion worth of Premium Bonds.

One of the main advantages of Premium Bonds is that they offer the chance to win tax-free prizes. This means that any prizes won are not subject to income tax, capital gains tax, or inheritance tax. This can make them an attractive option for those looking to save money while still having the opportunity to win a substantial prize.

Another advantage of Premium Bonds is their accessibility. Anyone over the age of 16 who is a UK resident can buy Premium Bonds, and there is no minimum investment amount. This means that they are a suitable option for those who may not have a lot of money to save but still want to have the chance to win a prize.

However, it’s important to note that the chances of winning a prize with Premium Bonds are relatively low. The odds of winning a prize are currently around 24,000 to 1, meaning that for every £1 invested, you can expect to win a prize around once every 24,000 months, or approximately every 2,000 years. This means that it is unlikely that you will win a prize with Premium Bonds, and they should not be considered a reliable source of income.

Despite the low odds of winning, Premium Bonds remain a popular choice for many UK savers. This may be because they offer a sense of excitement and anticipation, as bondholders wait to see if they have won a prize in the monthly draw. It’s also worth noting that the top prize of £1 million is a significant sum of money, and the prospect of winning such a large prize may be appealing to many people.

How Premium Bonds Work

1. You buy Premium Bonds with a minimum investment of £25. You can buy additional Bonds in increments of £25 up to a maximum of £50,000 per person.
2. Each Bond you own is given a unique number, which is entered into the monthly prize draw. The more Bonds you own, the more chances you have to win a prize.
3. The prize draw is conducted using a special computer called “Ernie” (Electronic Random Number Indicator Equipment), which generates the winning numbers randomly.
4. If your Bond number is selected as a winner, you will receive a tax-free prize. The value of the prize depends on the number of Bonds you own and the total number of Bonds in circulation.
5. You can check to see if you have won a prize by logging into your NS&I account, checking the NS&I app, or calling the NS&I prize check line. You can also have your prizes paid directly into your bank account.
6. You can cash in your Premium Bonds at any time and get your money back, minus any prizes you have won. If you cash in more than £25,000 worth of Premium Bonds in a single tax year, you will be subject to a tax charge.

Some of the advantages of Premium Bonds:

Tax-free prizes: Any prizes won through the Premium Bond prize draw are not subject to income tax, capital gains tax, or inheritance tax.

Accessibility: Anyone over the age of 16 who is a UK resident can buy Premium Bonds, and there is no minimum investment amount.

Low risk: Premium Bonds are backed by the UK government and are considered to be a safe investment, with no risk of losing the money that you have invested.

Excitement and anticipation: Bondholders have the chance to win tax-free prizes through the monthly prize draw, which can add a sense of excitement and anticipation to the process of saving.

Suitable for specific goals: Premium Bonds can be a useful way to save money for specific goals or purposes, such as a deposit on a house or a child’s education.

No guarantee of return: While bondholders have the chance to win prizes, there is no guarantee of a return on investment with Premium Bonds.

Some of the disadvantages of Premium Bonds:

Low odds of winning: The odds of winning a prize with Premium Bonds are currently around 24,000 to 1, meaning that it is unlikely that you will win a prize.

Not suitable for long-term savings: As Premium Bonds do not earn interest, they may not be the best choice for long-term savings.

Lack of guaranteed return: There is no guarantee of a return on investment with Premium Bonds, as bondholders only have the chance to win prizes through the monthly prize draw.

Limited access to funds: Bondholders can only withdraw their investments after a minimum of one month has passed, which may not be suitable for those who need access to their money on short notice.

Potentially confusing terms and conditions: The terms and conditions of Premium Bonds can be complex and may not be fully understood by all bondholders.

Inflation risk: The value of the prizes offered through the Premium Bond prize draw is not adjusted for inflation, which means that the purchasing power of the prizes may decrease over time.

How can I buy premium bonds?

1. Online: You can buy Premium Bonds online through the NS&I website (www.nsandi.com). You will need to create an NS&I account and provide some personal and financial information in order to purchase the bonds.
2. By post: You can also buy Premium Bonds by post by completing a paper application form and mailing it to NS&I. You can request an application form by contacting NS&I or by downloading one from the NS&I website.
3. By phone: You can purchase Premium Bonds by calling NS&I’s dedicated phone line. You will need to provide some personal and financial information in order to buy the bonds.
4. In person: You can also buy Premium Bonds in person by visiting a Post Office. You will need to bring identification with you and provide some personal and financial information in order to purchase the bonds.

It’s worth noting that there is no minimum investment amount for Premium Bonds, so you can buy as many or as few as you like. However, it’s important to consider whether Premium Bonds are a suitable option for your saving needs and to ensure that you have a diversified savings plan in place.

How can I find lost Premium Bonds?

If you think you may have lost some of your Premium Bonds, there are several steps you can take to try to locate them:

1. Check your records: The first thing you should do is check your records, including any paperwork or documents you have related to your Premium Bonds. Make sure you have checked all possible locations, such as your home, office, or safe deposit box.
2. Check with NS&I: If you are unable to locate your Premium Bonds, you can contact the National Savings and Investments (NS&I) agency to see if they have any record of your Bonds. You can do this online, by phone, or by post. You will need to provide your holder’s number, which is a unique 8-digit number that identifies your Premium Bond account, and the unique number of one of your Bonds.
3. Request a replacement certificate: If you are unable to locate your Premium Bonds and NS&I does not have a record of them, you can request a replacement certificate. To do this, you will need to complete a form and provide some identification, such as a passport or driving license. You can get a replacement certificate online, by phone, or by post.

It’s important to note that if you are unable to locate your Premium Bonds and NS&I does not have a record of them, you may not be able to reclaim your money. It’s a good idea to keep track of your Bonds and ensure that you have a record of your holder’s number and bond numbers in a safe place.

How do I check to see if I have won a prize in premium bonds?

To check if you have won a prize in premium bonds, you can use the NS&I premium bond prize checker on the NS&I website (https://www.nsandi.com/prize-checker). To use the prize checker, you will need to provide your premium bond holder’s number and the unique number of one of your premium bonds. The holder’s number is a unique 8-digit number that identifies your premium bond account, and the bond number is a unique 8-digit number that identifies each individual premium bond you own.

You can find your holder’s number and bond numbers on your premium bond certificate, or by logging in to your NS&I account online. If you have forgotten your holder’s number or do not have access to your premium bond certificate, you can request a replacement certificate by contacting NS&I.

You can also check if you have won a prize in premium bonds by downloading the NS&I app, which is available for iOS and Android devices. The app allows you to check your premium bond prize history and view any unclaimed prizes.

If you have won a prize in premium bonds, you will receive a notification by post or email (if you have signed up for prize notifications). You can also check your prize history online or through the NS&I app to see if you have won any prizes in previous draws.

Should I invest in Premium Bonds or put my money in a savings account?

Deciding whether to save money with Premium Bonds or in a traditional savings account (such as a bank account) will depend on your individual financial goals and circumstances. Here are some things to consider when deciding which option is best for you:

1. Interest: One of the main differences between Premium Bonds and traditional savings accounts is that Premium Bonds do not earn interest. This means that if you are looking to grow your savings over time, a traditional savings account may be a better option.
2. Risk: Premium Bonds are backed by the UK government and are considered to be a safe investment, with no risk of losing the money that you have invested. In contrast, traditional savings accounts are FSCS insured up to £85000 per depositor, which means that your money is protected in the event that the bank fails. However, it’s worth noting that the risk of a bank failure is very low in the UK and the maximum you can invest in premium bonds is £50000
3. Access to funds: With a traditional savings account, you can typically access your funds at any time. With Premium Bonds, you can only withdraw your investments after a minimum of one month has passed. This means that Premium Bonds may not be suitable for those who need access to their money on short notice.
4. Potential for return: Traditional savings accounts typically offer a guaranteed return in the form of interest, which means that you can expect to earn a certain amount of money on your savings over time. With Premium Bonds, there is no guarantee of a return, as bondholders only have the chance to win prizes through the monthly prize draw.
5. Suitability for specific goals: Premium Bonds can be a useful way to save money for specific goals or purposes, such as a deposit on a house or a child’s education. Traditional savings accounts may also be suitable for these purposes, but they may not offer the same sense of excitement and anticipation that Premium Bonds do.

Ultimately, the decision of whether to save with Premium Bonds or in a traditional savings account will depend on your individual financial goals and circumstances. It’s a good idea to consider your options carefully and seek professional financial advice if you are unsure which option is best for you.Regenerate response

What is the predicted return on premium bonds?

It is not possible to predict the return on Premium Bonds, as bondholders do not earn interest on their investments and only have the chance to win prizes through the monthly prize draw. The odds of winning a prize with Premium Bonds are currently around 24,000 to 1, meaning that for every £1 invested, you can expect to win a prize around once every 24,000 months, or approximately every 2,000 years. This means that it is unlikely that you will win a prize with Premium Bonds, and they should not be considered a reliable source of income.

In summary – If you are looking to grow your savings over time, you may want to consider alternative savings options such as traditional savings accounts, which typically offer a guaranteed return in the form of interest. It’s a good idea to shop around and compare different options to find the one that is most suitable for your financial goals and circumstances. Premium bonds are safe and there is a very small chance you may win a prize – but if you want to grow your savings you might want to consider other options.