Finance > Saving
What Are Premium Bonds?
NS&I (National Savings and Investments) is one of the largest savings organisations in the UK. The difference between NS&I and other banks (like Barclays) is that it is government-led. Therefore, when you put money into NS&I accounts, you are effectively lending to the Government, making NS&I accounts one of the safest places to put your money.
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What Are Premium Bonds?
Important points to note:
- You have to be over the age of 16 to buy bonds (parents/guardians can open accounts for under-16s, and anyone can buy bonds on their behalf)
- You have to transfer a minimum of £25 into your account each time and you must pay in whole pounds (for example, you could not transfer £50.50 into your premium bonds account)
- The bonds you buy are entered into the monthly draw once the bonds have been held for one calendar month after you buy them (for example, if you transfer £100 into your premium bonds account on 5 August, your 100 bonds will be entered into the prize draws from October onwards)
Transferring Money Into Your Premium Bonds Account
You can transfer money into your Premium Bonds account online, by phone, by post, or by bank transfer/standing order. The easiest way is by bank transfer, the NS&I website has all the details to set up a new payee, and you can then send money whenever you want.
It is important to note that it takes a couple of days for the money to appear in your Premium Bonds account. Therefore, if you are transferring money towards the end of the month, make sure to leave enough days otherwise the transfer may occur in the following month, which will push back the bonds being entered into the prize draw by a month.
Prizes
Once you have held your bonds in your account for the specified amount of time, the bonds are entered into a prize draw. The prizes range from £25 to £1 million, and the table below shows the volume and value of the individual prizes for a typical prize draw (details based on the April 2022 draw).
| Prize Value | Number of Prize Winners |
|---|---|
|
£1,000,000 |
2 |
|
£100,000 |
6 |
|
£50,000 |
11 |
|
£25,000 |
23 |
|
£10,000 |
58 |
|
£5,000 |
115 |
|
£1,000 |
1,953 |
|
£500 |
5,859 |
|
£100 |
31,734 |
|
£50 |
31,734 |
|
£25 |
3,324,584 |
So, in summary, there were about 3.4 million prizes handed out with a total value of nearly £100 million. The odds of winning a prize for each £1 bond number is 34,500 to 1.
You have three options when you win a prize:
- Get the prize money sent directly to your bank account;
- Automatically get the prize money to be reinvested into your Premium Bonds account (i.e. if you win £25, this will automatically be used to buy 25 more bonds); or
- Get the prize money sent to you by post (a cheque).
Benefits
- Prizes are tax-free
You will not pay taxes on any of your winnings. It is also important to note that everyone also gets a personal savings allowance (PSA), and the level of your PSA is determined by your level of income. The majority of people will be able to earn interest on a standard savings account tax-free.
- Your savings are extremely safe
Premium Bonds are backed by HM Treasury, therefore they can’t get any safer. Having said this, UK regulated savings accounts are also protected for up to £85,000 per person, backed by the Financial Services Compensation Scheme (FSCS).
- Easy-access
Premium Bonds are easy-access, meaning if you need the money, you can usually have it withdrawn within a couple of days
- You can win big
You can dream of winning the £1 million prize. Although it’s unlikely, one of the main selling points of Premium Bonds is that you have the chance to win big. So regardless of whether you’ll end up beating the interest of a bank’s savings account, everyone enjoys the chance of winning.
Drawbacks
- Most don’t need tax-free savings
As mentioned above, with the personal savings allowance, as well as ISAs, which enable us to save tax-free, the vast majority of individuals don’t need another method of saving tax-free
- Your return might struggle to beat the interest rates of top savings accounts
Whilst you have the chance to win big, the reality is that you need a lot of luck. Most individuals will struggle to beat the interest rates of the top savings accounts
- It’s a gamble
At the end of the day, you could win nothing. If you enjoy taking a gamble on some of your savings and understand your chances of success, it’s all fun and games. If not, you might be best sticking to a high-interest savings account instead.
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