It all depends on your financial circumstances and whether you prefer a prize draw to a traditional interest rate.
Many other bondholders, on the other hand, only receive tiny awards, and some do not receive anything at all.
We’ll compare the probability of winning Premium Bond awards to the lottery jackpot and savings accounts later in this post.
Your money is protected
Premium Bonds are offered by the government-owned National Savings and Investments (NS&I). This ensures that the money of clients is completely safe.
In contrast, bank and building society savings accounts are regulated by the Financial Services Compensation Scheme in the event that the provider goes bankrupt. The Financial Services Compensation Scheme (FSCS) only covers deposits up to £85,000 per individual and per institution.
However, because the maximum amount you can invest in Premium Bonds is £50,000, you might get the same level of security by putting that money in a high-street bank account.
They are tax-free
Because most of us have a personal savings allowance, I argue it is a benefit for certain people (PSA).
- Basic-rate taxpayers can earn interest on their savings of up to £1,000 per year without paying any tax.
- The PSA does not assist additional-rate taxpayers (those who pay the highest tax rate of 45 percent).
Because 95% of people do not pay any tax on their savings interest due to the allowance, Premium Bonds would provide no meaningful tax benefit.
It’s nevertheless comforting to know that if you do win a large sum of money, it will be tax-free.
You can reinvest
When you win with Premium Bonds, you get a form of compound interest effect.
You can have the money reinvested instead of taking cash (unless you already have the maximum £50,000).
Your winnings can be used to purchase more bonds. As a result, every £1 you invest buys a new bond, each of which has a unique number that is put into a monthly prize draw.
An easy access option
If you’re seeking for a temporary home for your money and will need access to it quickly, Premium Bonds could be a good option.
You might not want to put your money in a fixed-term savings account (where you lock your money up to get a greater interest rate) or invest in the stock market, which is more risky.
Premium Bonds can be withdrawn at any moment through the NS&I website (although it can take up to eight working days for the money to arrive in your bank account).
What are the disadvantages of Premium Bonds?
Premium Bonds are, in this sense, a sort of gambling, analogous to purchasing National Lottery tickets, rather than a savings or investment account.
It’s important to note, though, that just the “interest” is a gamble. The money you put into Premium Bonds is kept safe and secure.
Is it possible to win more than $25 on premium bonds?
Yes! Premium bonds are submitted into a monthly prize draw for a chance to win tax-free rewards of up to £25 each month. Obviously, inflation will diminish the value of my premium bonds over time.
Premium bonds give out how many awards each month?
We divide the awards into three value bands: greater, medium, and lower, and each band receives a percentage of the monthly prize fund.
Higher value band
Every month, we award two £1 million prizes. The remaining prize fund portion allotted to the higher value band is then divided equally among the remaining reward values. We begin by calculating the total number of £100,000 prizes. We carry over any balances that are less than half of the prize amount to the split for the £50,000 awards. Alternatively, if there is a balance of at least half the prize value, we grant an additional £100,000 prize. We accomplish this by deducting the shortfall from the £50,000 prize pool.
The numbers of other awards in this value bracket are then calculated in the same way, from highest to lowest value. Any surplus or shortage is added to or subtracted from the medium value range for computing the number of £5,000 prizes.
Medium value band
We determine the number of prizes based on the share of the prize cash allotted to this band, with one £1,000 reward for every three £500 prizes. Any surplus is transferred to the lower value band’s share.
Lower value band
The amount of lower-value prizes is calculated so that there are equal numbers of £100 and £50 prizes, and the total number of prizes (including £25 prizes) is equal to the number of eligible £1 Bond units divided by the odds.
Prize draw details
The table below displays the projected number of prizes of each value for the February 2022 draw, as well as the volume and value of the individual prizes for the January 2022 draw.
Are there any disadvantages to Premium Bonds?
Since 1957, National Savings and Investments (NS&I) has marketed Premium Bonds. They are a risk-free option to save because NS&I is supported by HM Treasury and is part of the government.
Premium Bonds do not pay interest, but they do have a monthly prize draw with prizes ranging from £25 to £1 million.
Each bond costs £1 and includes a unique reference number that is used to enter the draw. That implies that for every pound you invest, you may be eligible to win a prize once a month (though it is highly unlikely).
Limitations
Premium Bonds are only available to those who are 16 years old or older. They can, however, be purchased on behalf of children, grandchildren, and great grandchildren and kept by an adult until the child reaches the age of sixteen.
Popularity
In 2008, premium bonds were a big issue. People were looking for a safer way to save during the financial crunch, and Premium Bonds, which are backed by the government, cannot lose their value. People were also drawn to the product because of the increased chance of winning more money.
There are presently 74 billion Premium Bonds in circulation, with approximately three million winning a prize each month.
Potential returns
Prizes range from £25 to £1 million, with lower-value awards being granted more frequently than higher-value prizes.
It’s vital to keep in mind that there’s no assurance that you’ll win anything. The monthly prize pool determines the “average rate of return,” which is now 1.4 percent.
It’s not as simple as assuming that if you buy Premium Bonds, you’ll get a 1.4 percent return. There are several factors that go into determining your exact chances of receiving prize money in that amount, but we estimate that you’ll need to invest roughly £20,000 in bonds to get close to the average return.
This calculator can be used to determine your chances of winning and potential profits.
Advantages and Disadvantages
Is it worthwhile to invest in Premium Bonds? It is entirely up to you to make that decision. Before making any decisions, it’s a good idea to consider all of the possibilities:
You will not see any rewards on your investments if your Bonds are not picked in the monthly prize draw.
Everyone enjoys the prospect of winning a large sum of money! The thrill of the prospect of winning £25 to £1 million for each Bond held is enough to entice some investors.
While the mathematics required to determine your chances of winning are complex, it is currently believed that the possibility of winning any prize is 1 in 24,500 for each individual Bond held.
Premium Bonds are backed by the government, hence there are no risks involved. In the worst-case situation, the bonds purchased are never selected as a reward, and the account balance remains unchanged.
Though the numerical value of your savings cannot be reduced unless you remove money, the real-term value can. Because the cost of living is rising, a stable investment value that does not rise will lose purchasing power over time.
Savings are always tax-free, which is one of the key benefits of bonds: higher-rate and even basic-rate taxpayers can invest substantial sums with no tax consequences.
Since the Personal Savings Allowance was introduced in 2016, most savers have seen no tax liability on their returns. That means savers can invest in vehicles that provide higher returns, and the lack of tax is no longer a distinguishing or compelling feature.
Premium Bonds are backed by the government’s promise to buy them back at the same price you paid for them. That means you can take your money out whenever you want and not worry about being penalized.
After the bonds have been held for a full prize cycle, they are entered into their first reward draw. This implies that Bonds purchased in March will be retained until the prize draw in May. Borrowing from your Premium Bonds could result in you missing out on a successful month.
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.
Premium Bonds are drawn on what day of the month?
Each month’s draw and winning bonds are announced on the first business day of the month. Sometimes, this will be the first day of the month, while other times, due to a weekend or bank holiday, you may have to wait a little longer.
If you win on Premium Bonds, do you get notified?
If you win, we’ll notify you through text or email. When you sign into your online account, you’ll be given the ability to adjust your prize options.
What happens to Premium Bonds that aren’t claimed?
If you haven’t already done so, you can sign up for our online and phone services right now. Alternatively, you can write to us and inform us that you are the winner of an unclaimed reward. If you register, you can elect to have any future winnings sent directly into your bank account.
As a warrant, prizes will be mailed to your home address. Unfortunately, we are unable to transfer unclaimed rewards to your bank account.
If your contact information has changed since you won the award, please inform us of the new information and sign your letter.
Premium Bonds can be owned jointly.
Some assets (such as a joint bank account) can be owned jointly with another individual, allowing the assets to flow to the survivor owner after the other owner dies. Outside of the estate, other assets can be designated to a beneficiary (such as life insurance). The assets in these cases can be administered without the need for a probate grant.
Premium bonds can’t be held in a joint account with someone else. Furthermore, premium bonds cannot be designated to pass to a beneficiary when the owner passes away. If the entire worth of NS&I items exceeds £5,000, you have no choice but to file for a grant of probate.