Premium Bonds
What are premium bonds?
Premium bonds are a National Savings & Investments (NS&I) product, where each £1 you invest is given a unique number, and all numbers are put into a draw each month to win cash prizes.
It can be compared to a lottery or a raffle, as each £1 investment has an equal chance to win a tax-free prize worth £25 to £1m.
However, you do forfeit an interest rate on your money while it is invested into Premium Bonds.
Upsides
You are in with a chance of winning up to £1m, tax-free. NS&I is backed by the Treasury, so 100% of your money is safe. You can cash in some, or all, of your premium bonds at any time, without penalty. It takes around eight working days to process the request and transfer the money into your nominated account.
Premium bonds offer the thrill of potential returns without the risk of losing your original stake, but as they don't offer a guaranteed return they aren't suitable if you want to generate a reliable income from your savings.
Downsides
Your money isn’t protected from the effects of inflation and will have less spending power as time goes on.
Inflation is the rate of increase in the price for goods and services.
If you think about how much a loaf of bread used to cost, compared with how much it costs now you will see that the price has risen, and more money has been required to buy a loaf. If you apply this to the future cost of bread, you’ll see that the spending power of your pound might decrease, and you’ll need more money to buy the same things.
Yet, if your money keeps up with inflation, then your spending power shouldn’t decrease.
You might win nothing – every month! The odds of each £1 bond number winning a £25 prize are currently 24,500 to 1. Statistical probability should not be interpreted as a guarantee for performance.
You can’t transfer premium bonds, only withdraw, or add to them (although if someone has passed away, their premium bonds form part of their estate).
How Winners Are Chosen
Ernie (which stands for Electronic Random Number Indicator Equipment) is a computer that generates the random winnings numbers that are then matched against premium bonds.
Prize winners are normally notified in writing or in person if they’ve won the £1m jackpot.
You can choose for your prizes to be paid directly into your bank account, or automatically reinvested into more premium bonds.
You can check for recent and 'missed' prizes on the NS&I website by entering your bond holder’s number and selecting which month you want to check.
If you have lost track of old bonds, there is a free tracing service there, too.
Buying Premium Bonds
Each investment must be at least £25. You can only invest amounts in whole pounds.
The maximum investment is £50,000 - any numbers over £50,000 won't be eligible to win prizes.
You can buy Premium Bonds online on the National Savings and Investments website, by phone on 08085 007 007, or by posting an application form with a cheque.
Buying Premium Bonds For Others
If you’re a parent, legal guardian or grandparent, you can buy bonds on behalf of your child, grandchild or great-grandchild aged under 16 either online or by phone. The parent or guardian who's been nominated on the application will have to look after the bond until the child turns 16.
Once the child reaches the age of 16, NS&I will send a letter detailing how the bonds can be managed. They should print and send a registration form, and may have to get their signature witnessed and sent in, too.
Once they've been registered, they'll receive their own NS&I number and password and can gain control of the premium bonds bought for them.