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.
Do Premium Bonds hold their value over time?
Premium bonds are a National Savings & Investments (NS&I) savings product that gives you the chance to win between £25 and £1 million each month instead of paying interest.
Premium bonds are assigned a unique number for each £1 invested. Every month, all of the numbers are entered into a drawing for tax-free cash awards.
Because it’s a lottery, you could win nothing at all – and because you won’t be earning any interest, your money will lose value over time due to inflation.
However, with current low interest rates on normal savings accounts and Isas, you may believe that the possibility to win a large cash prize is worth the risk.
Is it possible to lose money playing NS&I?
Premium bonds are the last tax-free investment option from NS&I. Premium bonds allow you to save up to £30,000, but they pay out differently than regular savings accounts.
These bonds do not pay interest in the same way that traditional savings accounts do; instead, you will be placed into a monthly prize draw. The average prize is £50, however there is the possibility of winning up to £1 million.
However, you must keep in mind that you have no guarantee of winning a prize, and you will continue to lose money due to inflation because these bonds pay no interest.
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 it possible to own more than $50,000 in Premium Bonds?
If it is discovered that Premium Bond winners have invested more money than is allowed, their winnings may be taken away.
The largest amount you may invest in Premium Bonds right now is £50,000, with a minimum contribution of £25.
Premium Bonds are a type of savings product offered by National Savings and Investments (NS&I) that differs from traditional savings accounts in that you earn interest on your money.
Instead, people who invest are entered into a monthly prize draw for a chance to win a tax-free award of between £25 and £1 million.
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.
Overview
Premium Bonds allow you to invest anywhere between £100 and £40,000. Each month, a draw is held, with Premium Bond holders winning roughly £100 million. A £1 million jackpot is the highest prize.
You are not required to report it on your tax return. Premium Bonds can be purchased by anybody over the age of 16, and you can also purchase them on behalf of your kid or grandchild.
How to use this service
To apply, download the PDF application form from the National Savings and Investment website and mail it back to them.
The following link will lead you to a page with an application form and links to more information about how the bonds work. A copy of Adobe Reader is required to access the form.
What are the drawbacks to NS&I?
Savings items from NS&I aren’t always the best on the market. If you’re wanting to start a savings account, you might be able to get a better rate somewhere else.
Another disadvantage of NS&I is that many of its new accounts are disclosed months in advance, such as its upcoming Green Bond. Other providers will have more time to tweak existing products or introduce new ones that will compete with NS&I’s offers.
Finally, while we’ve discussed the thrill of winning the Premium Bond jackpot, it’s important to note that your odds of earning a million dollars are quite slim. That’s because winning £1 million with a single bond is a 1 in 49.48 billion chance. In addition, while NS&I now pays a 1% reward rate, it used to be significantly greater. In December 2020, the prior 1.4 percent rate was reduced.
If you have money saved up, read our savings advice to find out where you should put it.