Premium Bonds are a unique type of saving account. Instead of depositing money to earn a set percentage of interest, your bonds are entered into a prize draw every month.
With Premium Bonds, you have the potential to win a jackpot of £1 million, although, in reality, only two people a month win this prize. In 2022, more than 21 million people save in premium bonds, collectively saving over £117 billion in these accounts.
Premium Bonds are owned and regulated by the government and can be obtained from the NS&I (National Savings and Investment Agency).
Before choosing to save with Premium Bonds, you should understand how they work and your chances of winning first.
How to buy Premium Bonds?
Premium bonds can be bought from the NS&I, with the easiest way to do this being online, although you can also apply to set up an account by phone or post.
To buy bonds for yourself, you need to be over 16. However, children under this age can have Premium Bonds bought for them and held in their name by a guardian. Anyone can buy and gift a Premium Bond account to someone else and nominate the person they want to hold it.
When first opening a Premium Bond account, you’ll need to deposit a minimum amount of money. This minimum amount is £25 to start your account, and if you want to buy more bonds, you’ll again have to buy more than £25.
You can set up an account with more than this amount; however, the maximum your account can hold is £50,000. This means if you do win anything from the monthly prize draw, you won’t be able to put it into your bonds account and will have to withdraw it.
When do new Premium Bonds enter the monthly drawing?
You’ll need to have an active Premium Bonds account for a month before the bonds you have in it is eligible for the monthly prize draw.
The draws take place at the start of each month, meaning if you’ve created your account halfway through January, the first draw you’ll be eligible for is the one taking place on 1st March.
After each draw, you can find out if your bonds have won any prizes by logging into your account. You’ll need your NS&I number at hand to be able to do this.
If you have won anything from a monthly draw and decide to withdraw it, it may take a few days for the funds to transfer accounts.
How much can I win with Premium Bonds?
Each £1 bond you have bought has an equal chance of winning the £1 million jackpot each month. Each £1 bond saved will compete with all the other bonds purchased by other account holders with NS&I.
Because only two bonds win £1 million a month, it means the chances a single £1 bond has of winning the jackpot are worse than 1/58.5 billion.
The odds of winning the weekly lotto jackpot is around 1/45 million.
Of course, the more £1 bonds you own, the higher your chance of winning. Plus, as well as the £1 million jackpot, there are other prizes. The distribution of those prises for April 2022 was:
£1 million – 2 winning bonds
£100,000 – 6 winning bonds
£50,000 – 11 winning bonds
£25,000 – 23 winning bonds
£10,000 – 58 winning bonds
£5,000 – 115 winning bonds
£1,000 – 1,953 winning bonds
£500 – 5,859 winning bonds
£100 – 31,734 winning bonds
£50 – 31,734 winning bonds
£25 – 3,324,584 winning bonds
This means that out of around 117 billion bonds, only 3,396,079 bonds win. That’s a win rate of 0.00003% for each bond. Plus, if you are lucky enough to win off a single bond, the likelihood that you win more than £25 is 2.1%.
Of course, the more bonds you own, the better these odds become. It is important to understand that each draw is separate and the results of one month have no effect on any future drawings.
What are the benefits of buying Premium Bonds?
The main benefit of Premium Bonds is that they give people the chance to win large amounts of money. However, that money isn’t guaranteed, and the truth is the average person will likely earn nothing from Premium Bonds. They only become valuable saving accounts if you’re fortunate to win.
In the past, Premium Bonds used to have other benefits over other saving accounts, such as their safety and their tax-free payouts.
However, these days, these benefits aren’t as useful.
The majority of people will not have to pay tax on their interest earned with standard saving accounts. In fact, only 5% of the UK population will have to pay tax for this interest. Premium Bonds can be a useful place for these people to store cash, because it can generate tax-free income for them – providing they win.
In terms of safety, Premium bonds are one of the safest saving accounts available. This is because it’s government-owned, meaning it’ll never go bust, ensuring the money you deposit is safe. However, these days, the majority of saving accounts will also have protection due to the FSCS, and this protection is up to £85,000, more than what can be stored in a Premium Bond.
What are the alternatives to Premium Bonds?
If you’re looking for a reliable saving account that guarantees you a certain amount of interest, then there are multiple saving account options that may be better.
It’s tough to generate a genuine interest rate for premium bonds because of its prize-winning system. However, you can generate a prize rate of 1% that can be used to compare with other interest rates.
When looking at the top one year saving fixed saving accounts, ISAs, and other saving options, the interest rate will alter between 1.05%-2%. This means that every other opportunity may have a better, guaranteed interest rate.
However, none of these interest rates will beat inflation, meaning the value of your savings may deplete over time, although it’s still best to opt for a saving account that gives you the best value.
If you want a reliable way to earn interest, then these are better options. Of course, there’s always a slim chance to win big with a Premium bond.
The worthiness of a Premium Bond is down to your situation. If you already have a saving account, are one of the higher taxpayers who have to pay tax on interest earned, or don’t need a regular income stream, then storing cash in a Premium Bond for the chance to win can be a good option, but understand your chances of winning big are minimal.