No, because NS&I is a Treasury-approved and regulated company rather than a bank, your money is completely safe.
Even if you’re a bad luck client who never wins, the money you invest in Premium Bonds is protected. Although not always in terms of money’s true value.
Your money is dwindling in terms of what it can buy unless you win enough to stay up with the rate of inflation, which is currently 0.9 percent.
What are some of the drawbacks of Premium Bonds?
You will not receive a return on your investment until you win a reward in the monthly prize draw.
Premium bonds aren’t for you if you’re looking for a sure thing. The odds of winning a prize based on each £1 bond are currently 34,500 to 1.
There’s a chance you’ll only get back a small portion of what you put in. And unless you’re extremely lucky and win big, your return is unlikely to stay up with inflation.
Why would anyone pay a premium for a bond?
- A premium bond is one that trades at a higher price than its face value or costs more than the bond’s face value.
- Because its interest rate is higher than the prevailing market rate, a bond may trade at a premium.
- The bond’s price can also be influenced by the company’s and bond’s credit ratings.
- Investors are willing to pay a higher price for a creditworthy bond issued by a financially sound company.
Is buying premium bonds in bulk better?
Q I have £27,000 in premium bonds that were issued in blocks of £2,000 and £1,000, and my winnings have been poor (£600 in the last three years).
Could you kindly tell me whether there is any evidence that holding one entire block rather than having them divided up as they are now would be better? I realize that if this is asked, it can be done, but I will forfeit one month of participation in the drawing.
A There are numerous theories. There is no evidence, however, that owning premium bonds in a single block increases your chances of winning. Otherwise, it would have become well known very quickly.
The R in ERNIE denotes a ‘random’ (Electronic Random Number Indicator Equipment) selection of the winning numbers, which has been the case since the inaugural draw in 1997. Each month, ERNIE is designed to select 2.5 million numbers, which are subsequently matched to 1 million eligible bonds (many of the numbers include bonds not yet sold or those which have been cashed in).
Since the introduction of the national lottery, premium bonds have grown in popularity to the point that total holdings are now about £25 billion, making the odds of winning the single £1 million top prize astronomical. The average payout is set at 3.2 percent net, but this covers all of the rewards given out, implying that the government is borrowing money at a low rate.
The fact that the earnings are tax-free on an investment where you can always get your money back is a major selling point. Unlike the lottery, which is a zero-sum game. You could sell your bonds and then buy them back to cover consecutive numbers. However, as you point out, this will cost you a month in the draw and will not increase your chances of winning. Don’t get too down on yourself. It appears that investors frequently receive nothing or very little for long periods of time before experiencing a run of excellent fortune.
How long do Premium Bonds take to withdraw?
What is the time frame for redeeming Premium Bonds? Unless you have chosen to cash in after the next draw, it can take up to three banking days for the money to reach your account, according to NS&I.
When do Premium Bonds enter the draw after purchase?
Premium Bonds are eligible for the draw one full calendar month after they are purchased, according to NS&I. If you buy them in November, for example, they’ll be in every draw starting in January.
How much money can you win on Premium Bonds?
Bonds and a chance to win a prize Every month, we pay out roughly $3 million in rewards to lucky Bond holders whose numbers are produced at random by ERNIE, our random-number generator. All prizes are tax-free and range from £25 to £1 million.
Is there another option except Premium Bonds?
“In the end, savers have a clear, though not always straightforward, choice: receive interest on their assets or risk potentially enormous returns or, of course, none at all!”
“For those looking for alternatives with simple access, both regular accounts (RCI Bank’s Freedom Savings Account) and cash ISAs (Nationwide’s Single Access ISA) are currently offering 1.30 percent.”
“You can choose a fixed rate account for higher rates in exchange for being locked in for the term. Fixed-rate bonds vary from 1.85% for a year (Wyelands Bank and United Trust Bank) to 2.65% for five years (Vanquis Bank, United Bank UK, and Secure Trust Bank).”
“For a one-year fixed rate cash ISA, rates now vary from 1.48 percent (Kent Reliance) to 2.65 percent (United Bank UK).”
“There are other options that pay a fixed rate of interest, as opposed to the variable returns (if any) offered by Premium Bonds – but that doesn’t mean they aren’t worth considering as part of a broader savings strategy.” There are a lot of smaller rewards up for grabs, and even the chance to win the major prize would be enticing to many.”
Is FSCS coverage available for Premium Bonds?
Premium Bonds from NS&I allow you to save for the future without risking your initial investment. Because NS&I (National Savings and Investments) is a government-owned company, it is supported by HM Treasury. Premium Bonds have been available since 1957 and continue to be extremely popular, with over 21 million people investing a total of £72 billion.
You don’t get paid interest, but you are entered into a monthly prize draw at random. Simply put, one pound buys one bond, therefore the more you invest, the better your chances of winning. And it’s truly random; the ERNIE (Electronic Random Number Indicator Equipment… catchy) technology that produces the winning bonds is independently validated each month before the winners are announced.
To acquire bonds, you must be at least 16 years old, although you can do so on behalf of your children, grandkids, or other family members. Many parents, guardians, and grandparents, in particular, purchase Premium Bonds as a potentially important gift for their children on their 16th birthday.
What could you win?
The prizes vary from £25 and £1 million. There are two £1 million rewards awarded each month, implying that the odds of winning the jackpot are more than one in 31 billion! The smaller the value of the award, the more prizes are offered each month. There are 1,677 £1,000 awards and 2,879,959 £25 rewards, for example.
It’s important to keep in mind that winning a reward and getting a return on your investment are not guaranteed. The average payout ‘Annual prize fund interest rate,’ according to NS&I, is 1.40 percent, although you can have a hard time achieving that with average luck. It is impossible to win £1.40 for every £100 because the minimum prize is £25.
There are very complicated calculations that go into calculating your exact chances of winning a reward, but we estimate that you’ll need around £20,000 in bonds to get close to the rate quoted. If you’d want to evaluate your potential profits, MoneySavingExpert has created a handy calculator.
Is it really worth it? It’s completely up to you! But, before you decide to buy Premium Bonds, consider the following advantages and disadvantages:
The pros
- You could be worth a million dollars! Everyone likes the prospect of a huge victory, and the chance to win up to £1 million is enough to entice some individuals to invest.
- Premium Bonds have no investment risk because they are backed by the government. Previously, this was more of a selling feature, but the Financial Services Compensation Scheme (FSCS) now protects all UK savings accounts up to £85,000 per person, per institution.
- They aren’t taxed: Premium Bonds are tax-free both in terms of income and capital gains, which is wonderful news for higher-rate taxpayers who may be nearing the end of their Personal Savings Allowance (PSA). The PSA limits a higher or top-rate taxpayer’s tax-free interest from most other types of investments to just £500. However, we recommend that you make the most of your £20,000 2018/19 personal ISA allocation, which is tax-free.
- Premium Bonds are instantly accessible since they are backed by a government commitment to buy them back at the same price you paid for them, i.e. £1 each. That means you can take your money out whenever you want and not worry about being charged for it.
- The ability to auto-invest: Investing any earnings right away works on the same premise as compound interest in traditional cash investments, in which previous gains attract new gains. You can only invest automatically up to £50,000; after that, you will be paid directly to your selected bank account or by check.
The cons
- There’s no interest: If your Bonds aren’t chosen at random in the monthly prize draw, you won’t get any returns on your money.
- The odds aren’t in your favor: you have a 1 in 24,500 chance of winning anything (i.e. the £25 minimum). Because greater rewards are less common, the odds of winning anything more than £25 are much higher.
- Inflation: As the cost of living rises, an investment with a fixed value loses buying power over time. Currently, the ONS reports an inflation rate of 2.2 percent, which is 0.8 percent lower than the NS&I forecast. This means that your money will lose value over time in actual terms.
- Currently, all investments are tax-free: Premium bonds used to be unique in that they were tax-free, but since the PSA was implemented in 2016, the vast majority of depositors have seen no tax responsibility on their returns. That implies you have the choice of using other investment options that may provide superior results.
- Bonds purchased are placed into their first draw when they have been held for a full reward cycle. This implies that any funds invested in December will be held until the January prize draw, preventing you from winning.
There you have it; they have the potential to make you a millionaire or they have the potential to drain your wealth due to inflation. Their appealing attributes of being tax-free and having a good chance of winning have been somewhat eroded in recent years.
Do Premium Bonds count as universal credit savings?
Savings are defined as any money or financial items that you can obtain with relative ease.
- If used to replace or repair something, insurance claims will be rejected for six months.