What are Premium Bonds? | Money Mentor

 

Learn all about premium bonds with Money Mentor, the beginners guide to personal finance, saving, investing and achieving financial freedom.

What Are Premium Bonds?:

NS&I Premium Bonds are only issued by National Savings & Investments and are an alternative type of savings account you can put money into, and take out of, whenever you want.

They are not strictly a savings account in the traditional way that we have described savings accounts in previous pages, in so far as you do not earn a fixed rate of interest on your savings, you are entered in a monthly draw and need to check the premium bonds prize checker to see if you have won a share of the prize fund.

How Do NS&I Premium Bonds Work?:

What happens is that you buy Premium bonds at a price of £1 each, in £25 batches, up to a current maximum value of £50,000 per person. You can buy premium bonds online, or in the post office via a premium bonds application form.

Then, one full calendar month after you bought your bonds, you will be entered into a monthly prize draw to win a variety of cash prizes. These prizes range from £25 up to £1m in value, and each bond has an equal chance of winning, so the more bonds you buy, the more your chances improve. Even if you don't win one month, you can then wait for the next premium bond draw date to see if you have more luck then.

Premium Bonds Have I Won?:

The overall odds of winning a prize have recently increased from 34,500 to 1, to 24,000 to 1, and if you are fortunate enough to win a prize, there is a 95% chance that that prize will be £25.

The chance of winning one of the £1m prizes is an eye-watering 58 billion to 1, but on the bright side, you don’t lose your money each month, as you would with the Lotto. You automatically get re-entered into the next monthly draw, unless you take your money out.

The number of prizes and distribution of prizes is determined by the prize fund size, and current interest rate applied to the fund. These change frequently, so keep up to date online.

For example, if the prize fund is worth £100m and the interest rate is 1.2%, there will be £1.2m / 12 of prizes distributed that month, so £100,000. In reality, the prize fund is much larger than this, probably in the hundreds of billions of Pounds.

The popularity of Premium bonds has always been high, in fact, nearly half the population of the UK now owns them, and as they are issued by National Savings & Investments, they are 100% safe, having the backing of the UK Government.

​Premium Bond Prizes:

Every month more than a million prize-winning numbers and premium bond prizes are chosen at random by ERNIE (Electronic Random Number Indicator Equipment) including the lucky £1m winners.

Other premium bond prizes include £25, £50, £100, £500 £1,000, £5,000, £10,000, £25,000, £50,000 and £100,000.

The current Premium bond prize fund interest rate is 3.0%, (WEF Jan 2023) this rate can vary like any other interest rate, but it gives an indication of the potential prize fund each month and your odds of a win with average luck.

It should be understood that saving sums such as £50, £100, or £500 is not likely to result in a win for quite some time, if ever. The only way to increase your chances of a prize is to buy more bonds.

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