A Guide To Buying Premium Bonds & The Truth Behind Them

Premium Bonds were first introduced by a man named Harold Macmillan in 1956. A Premium Bond is a lottery bond that is issued by the United Kingdom Government’s National Savings and Investment Agency.

The Bonds are entered a regular prize drawing. If you no longer want your Bonds entered the drawing, the government will buy them back for the original price that you paid.

If you are thinking that you want to buy Premium Bonds, you should understand how they work first.

What Is the Minimum and Maximum Investment Allowed?

If you are thinking about purchasing bonds and you don’t want to invest too much money, the minimum number you can buy is £100.

If you are looking to invest more, the maximum holding you can have is £50,000.

How Can I Buy Premium Bonds?

There was a time that bonds could be purchased at any of the post office branches. This is no longer the case. Post office branches no longer sell these bonds. Fortunately, there are a few simple ways that you can purchase them.

  • Apply Online: NS&I Premium Bonds makes buying very simple by offering an online buying option. You would simply visit the website and then follow the links.
  • Apply By Phone: If you don’t have internet access or if you don’t feel safe entering your personal and financial information online, you can apply by phone. To apply by phone, you can contact NS&I at 0500 500 000. A highly trained representative will take your order over the phone quickly and efficiently.
  • Apply By Post: If you prefer to do your ordering through the mail, this is an option. On the NS&I Premium Bonds website, there is a downloadable form. You would simply download and print the application form and then fill it out in its entirety. Once you have decided how many bonds you are going to buy, you would need to write a cheque for that amount. The application and the cheque would be mailed to: NS&I, Glasgow, G58 1SB

When Do New Premium Bonds Enter the Monthly Drawing?

When you first purchase your bonds, you would need to wait one full month before they would be entered the next drawing.

The drawing happens at the beginning of each month. Depending on when you purchased your bonds, it could be anywhere from 5 to 8 weeks from your original purchase date before you would have your first chance to win.

For example, if you were to purchase your bonds in the month of September, you would need to wait until that same date in October for your bonds to become effective.

This means that you would need to wait until November 1st before your bonds would be entered the drawing. It is important that you understand how your bonds work and when they are entered the drawing.

If you have any questions regarding when your bonds would go into the drawing, you can call and speak to someone. There are plenty of representatives on staff who can help you understand how the drawing dates work.

How Much Can I Win With Premium Bonds?

Currently, the lowest prize available is £25 and the highest prize amount available is £1,000,000. The amount of money that you can win depends on your initial investment and the number of bonds that you purchased.

What Are the Chances of My Premium Bonds Winning?

Every Premium bond that is entered the drawing has an equal chance of winning the prize. If one of your bonds wins a prize, your other bonds can also win a prize that same month. If one of your bonds wins a prize, you have an equal chance of winning the next month.

It is important to understand that each drawing is separate and the results have no effect on any future drawings.

Where Does the Money For the Winning Draws Come From?

Premium Bond holders are required to pay monthly interest rate of 1.35 percent. The prizes that you can win comes from the combination of all the interest rates paid by buyers.

How Many Prizes Win Each Month?

Every month over 2 million of the Premium Bonds purchased will win a prize There are two prizes in the amount of £1,000,000 paid out every month. There are many other prizes awarded as well. They include:

Multiple winners for the lower amount prizes in the amounts of £25, £50, and £100

  • £500
  • £1,000
  • £5,000
  • £10,000
  • £25,000
  • £50,000
  • £100,000

How Do Higher Rate Taxpayers Benefit From Buying Premium Bonds?

If you are in a high tax bracket, you can benefit from buying bonds. A general savings account will pay out no more than 1.6 gross interest. This equals out to about 0.96 percent after taxes for people in a high tax bracket. The 1.35 percent interest rate on bonds is tax-free. Higher rate taxpayers have a potential to earn 0.04 percent from the tax-free bonds.

It is important to understand that the interest rate would be applied to the entire fund and not to your initial investment. This means that you could end up with several pounds to invest.

If you are in a higher tax bracket, there is a chance that you can beat the standard savings accounts that are taxable.

How Are Premium Bonds Prizes Paid To Me If I Win?

There are many ways that you could be paid your prize.

  • Default Payment Option: If you choose the default payment option, you can have a cheque sent to your registered address.
  • Direct Deposit: If you don’t want to wait to receive a cheque, you can have the money paid directly to your bank account. This is much faster than the default payment option because you wouldn’t need to wait for the cheque to be printed and then sent to you. Also, you will have access to the funds immediately. With the default payment option, you would need to wait at least a week for the cheque to clear.
  • Reinvestment: If you don’t want the cash, you can have your winnings automatically reinvested into your bonds account. This will increase your chances of winning the next monthly drawing.
  • ** If you win and you already hold the maximum number of bonds allowed, you would receive a cheque.

Who Can Benefit From Buying Bonds?

There are a few savers who these bonds would be suitable for:

  • Anyone who wants a chance to win the £1 million jackpot and other tax-free prizes
  • Anyone who has at least £100 to invest
  • Anyone who wants 100 percent security on their investment
  • Anyone who wants to take advantage of tax-free investment opportunities

Who Will Not Benefit From Buying Bonds?

There are certain people in certain situations where bonds would not be beneficial.

  • Anyone who is hoping to earn a regular income by purchasing bonds
  • Anyone who is looking for a guaranteed return on their investment
  • Anyone who is worried that inflation will erode their savings

If you want to invest your money in something where you have a chance of winning, you should consider buying Premium Bonds. If you like taking the chance and the gamble, this is an investment that can be very enjoyable.

Are Premium Bonds a Safe Investment or a Waste of Time?

Premium Bonds allow you to save your money with the odds of winning cash prizes from monthly draws. However, are they as straightforward as they appear? Here is a guide on how they work.

What Are Premium Bonds?

Premium bonds are a savings scheme presented by NS&I (National Savings and Investments) that allows you to pay in any amount from a minimum of £100 (£50 for existing bond holders) up to a maximum £50,000.

Every £1 you invest into a bond is assigned a special number which is then entered into a monthly prize draw. If your special number is chosen, you could win a tax-free prize ranging from £25 to £1 million. You would not earn interest on any money that you save into Premium Bonds.

Any return on your investment is not guaranteed, and the returns are on usually much lower than the interest that you could earn from a normal savings account.

The unique number of your bond is re-entered into each subsequent draw until you choose to cash them in.

How Does The Prize Draw Work?

ERNIE  or the Electronic Random Number Indicator Equipment pick out winning numbers from all of the bonds entered every month.

You have a 30,000 to 1 possibility of winning for each £1 you put in.

The prize draw is split into three bands:

  • Higher value (5% of prize fund): £5,000, £10,000, £25,000, £50,000, £100,000 and £1 million
  • Medium value (5% of prize fund): £500 and £1,000
  • Lower value (90% of prize fund): £25, £50 and £100

What Are The Benefits?

  • Tax free savings.
  • There is no risk to your money as it is left untouched; the prize draw is made up of the interest that would have been paid out to everyone in the prize fund.
  • They guarantee that all of your money is completely safe because NS&I is backed by HM Treasury.
  • There is no minimum length of time that you must hold the bonds, meaning you can cash them in any time.

What are the drawbacks?

  • You do not earn any interest.
  • You may never win anything from the prize draw.
  • Even though you can withdraw your money anytime, it can take up to 8 days to get the money into your account.

How can you purchase Premium Bonds?

You can purchase them directly from NS&I online, by post, or over the phone.

You must be at least 16 years old to buy a premium bond, but parents or grandparents are allowed to buy them for anyone under 16.

How do you receive your winnings?

You can select one of these three methods of payment:

  • Paid by post: this is the default way that you will be paid. This will be in the form of a warrant, which is similar to a cheque, that you will take to your bank and wait to clear.
  • Reinvest into more bonds: you can choose this up to the maximum holding of £50,000.
  • Paid to your bank account: you must register and login to the website of NS&I’s to determine the account you want your winnings to get transferred to.

What are the alternatives?

Even though there is a probability that you could win big with Premium Bonds, the chances of hitting the jackpot are negligible at best.

To ensure that your money is growing you could invest in a savings account instead.