Premium Bonds are an investment product offered by National Savings & Investment. Let’s have a look at how they work and whether they’re right for you…
National Savings & Investment
National Savings & Investment (NS&I) is a state-owned UK savings bank. NS&I is the only place in which you can get these Premium Bonds.
When you save money with NS&I, you’re essentially lending your money to the government, and the government in return either gives you interest on your money, or in the case of Premium Bonds, a chance to win cash prizes.
As with any product offered by NS&I, your money is secure and backed by HM Treasury.
How Premium Bonds Work
Each Premium Bond costs £1, and you can hold between £25 and £50,000 worth of bonds. For every bond you hold, you are entered into a monthly prize draw. So, if you had £50 of bonds, you would get 50 different entries.
A random number generator decides which bond holders win the draw each month. If you do win the monthly prize draw, winnings are tax-free and range all the way from £25 to £1 million.
If I Win
If you win, you can choose to have the money paid straight into your bank account, reinvested into more bonds, or sent as a cheque through the post.
However, if you’re lucky enough to win more than £5,000, you will not be automatically paid and will instead receive a claim form to complete and confirm how you wish to receive the prize.
Are Premium Bonds Right for Me?
As with any financial decision, whether Premium Bonds are right for you is a personal choice.
You might decide they are right for you if you want the excitement that comes with the possibility of winning a prize every month. You can also cash in all or part of your Premium Bonds at any time, meaning that you aren’t tied in if you decide it’s no longer right for you.
However, if you want a regular income with guaranteed returns, they may not be the best choice for you, as the money you hold as bonds will not benefit from added interest. Therefore, over time, inflation will have an erosive effect on your savings, making them lose value over time.
The odds of winning are 24,000 to 1 for every bond you hold, and many will either win smaller-value prizes or never win at all. This means that unless you are lucky enough to win one of the bigger prizes, your money will probably fail to keep pace with inflation.