Premium Bonds defined – Be Intelligent With Your Money

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What are Premium Bonds?

Premium Bonds are a very fashionable sort of financial savings account from Nationwide Financial savings & Investments (NSI) that provide prospects the possibility of profitable money prizes as an alternative of paying curiosity. 

Every bond prices £1 though it’s important to purchase a minimal of £25 price at a time. This will get you 25 entries into every month-to-month draw. The utmost variety of bonds you possibly can have is 50,000 price £50,000.

Any prizes you win are tax-free and 100% of your cash is backed by the Treasury. When you’ve got extra money in different NS&I accounts it’ll all be protected – there’s no £85,000 restrict as there may be with suppliers lined by the Monetary Compensation Companies Scheme. And as with financial savings, your Premium Bonds gained’t lose worth.

Your cash is easy-access so you possibly can money the bonds in at any time. Nonetheless, it may take as much as eight working days for the cash to achieve your present account.

Some 24 million individuals have Premium Bonds (together with over 800,000 children) and so they’ve been round for the reason that Nineteen Fifties. 

The primary prize draw was in 1957 and enjoyable reality – the machine used to generate random numbers for the draw (the Digital Random Quantity Indicator Tools, referred to as ERNIE) was invented by a Bletchley Park codebreaker.

Premium Bond prizes

Proper now there are round 5.9 million prizes to win every month starting from £25 to £1m. 

As you possibly can count on, there are hundreds extra of the decrease worth prizes in comparison with the larger ones. Nearly 99% of the full variety of prizes are £25, £50 or £100.

There are two £1m prizes to win every month so 24 probabilities a 12 months to win. However, in actuality, it’s most unlikely you’ll win considered one of these large prizes.

The Premium Bond prize price can change, and it was minimize in January 2025 to 4% from 4.15%.

The prize price doesn’t imply you’ll get a 4% return in your financial savings. As an alternative, it suggests a mean of £4 is paid out for every bond.

Nevertheless it’s not as minimize and dry as that as a result of there is no such thing as a £4 prize! Because the minimal is £25, it means not each bond can win every time. There’s no assure you’ll win something and let’s be sincere, most bonds don’t. 

To offer you an concept of the prizes out there, listed below are all those listed for the January 2025 draw and the way they examine to earlier attracts.

How probably am I to win? 

In the intervening time, the percentages of profitable a prize are 22,000 to at least one – so that they’re not nice.

The extra money you could have in Premium Bonds, the higher your probabilities of profitable. 

Utilizing a web based calculator and based mostly on the 4% prize price from January, right here’s what your odds of profitable might appear to be, based mostly on the worth of your funding over a 12 months, based mostly on common luck:

Based mostly on the chart above, even with common luck, everyone seems to be incomes under the prize price. In fact, a tiny handful will do much better, however what’s extra probably, is that most individuals gained’t win something. 

Round 14.4million individuals, or two-thirds of Premium Bond holders, have by no means gained a prize with the Premium Bonds, in keeping with a Freedom of Info request made by funding agency AJ Bell. Of the 5.3 million individuals who did win between June 2023 and Might 2024, the common holding was £23,047.

And let’s not neglect Andy’s mates’ expertise with Premium Bonds. The three of them invested £50,000 in Premium Bonds for a 12 months and had very totally different outcomes. 

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How do Premium Bonds examine with financial savings accounts?

Following one other minimize to the Financial institution of England base price in November, financial savings charges are falling. And with additional cuts predicted this 12 months, this might proceed.

That’s to not say the prize price of Premium Bonds can’t fall too.

But when we have a look at the highest charges of easy accessibility accounts, that are the closest comparable account to Premium Bonds, new prospects can fairly a bit greater than the Premium Bond prize price and it’s assured. 

You might additionally think about a Money ISA, which frequently beat the prize price too, and all of your returns might be tax free.

You might get an excellent greater price with some restrictions. For instance, Santander pays 6% on as much as £4,000 on its Edge Saver (you’ll want a Santander present account) whereas there are common savers providing as much as 8%.

As a common rule while you’re taking a look at financial savings charges, if it’s the identical or greater than the Premium Bonds prize price, you’ll in all probability be higher off going with the financial savings account. Nonetheless, in the event that they’re variable charges, they might change, so it’s essential to regulate your accounts.

Premium Bonds and tax

Any prizes you win are tax-free – and this could be a large draw for those who’re somebody who’s prone to pay tax in your financial savings curiosity or are a better or extra price taxpayer. 

If we have a look at customary financial savings accounts, although not ISAs, solely among the curiosity you earn is tax free.

For those who’re a fundamental price taxpayer you get a £1,000 Private Financial savings Allowance every year and for those who’re a better price taxpayer you get a £500 allowance. Any financial savings curiosity above this might be taxed at your standard tax price. 

Further price taxpayers don’t get any tax-free allowance – which implies any financial savings curiosity you earn might be taxed. It’s why Premium Bonds may be way more interesting to these on greater incomes, particularly in the event that they’ve additionally exceeded their annual ISA allowance.

Ought to I purchase Premium Bonds?

For most individuals, financial savings accounts are a greater possibility than Premium Bonds, particularly for the reason that prize price has been minimize.

However for the upper earners, they may nonetheless maintain a little bit of attract due to the tax-free prizes.

ISAs ought to be your first port of name however for those who’ve maxed out your £20,000 allowance and also you’re prone to pay tax in your financial savings curiosity, Premium Bonds is perhaps price contemplating.

Otherwise you would possibly like Premium Bonds due to the joys of probably profitable 1,000,000 kilos – or different beneficiant prizes. Nonetheless, whereas somebody has to win it (and so they do!) many individuals by no means will and you could possibly get completely no return in your cash for so long as you could have the bonds.

Usually talking, even in case you have the utmost £50,000 in Premium Bonds, you’re nonetheless far in need of the charges of the highest easy-access or limited-access accounts.

It’s additionally not an ideal concept to have that a lot cash in easy-access accounts anyway. As a rule of thumb, you wish to preserve between three and 6 months outgoings in these accounts to be sure to’re lined in case of an emergency. This might embody shedding your job, changing the boiler or fixing your automobile if one thing goes mistaken with it unexpectedly.

Your cash’s greatest positioned in an easy-access account or Money ISA paying a prime price after which you possibly can think about different choices relying on how a lot money you could have and what your objectives are.

For instance, for long-term saving you might wish to think about investing or contributing extra to your pension, and taking advantage of the tax benefits.

How do I purchase Premium Bonds?

It’s a must to be over 16 years previous to purchase Premium Bonds for your self.

You will get Premium Bonds from the NS&I web site. Alternatively you should buy them by way of the submit or by cellphone.

However for those who’re shopping for Premium Bonds for another person’s children, you possibly can’t purchase them over the cellphone, and also you gained’t have the ability to purchase Premium Bonds for your self or anyone else by bank card.

When to purchase Premium Bonds

The Premium Bond attracts happen at first of every month, however you’re solely eligible for every draw on bonds which were invested for a full month.

This implies you’re higher off shopping for them on the finish of a calendar month than at some other level.

How will I do know if I’ve gained a prize?

The quickest option to discover out for those who’ve gained is by coming into your account quantity into the NS&I Premium Bond prize checker or the app model (you will get this on the App retailer or Google Play). It’ll present you this month’s prizes, something you’ve gained within the earlier six months and any older prizes you’ve not claimed but.

You may also ask Alexa for those who’ve gained. You’ll have to open the Ability on the Alexa app and comply with the steps.