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Are Premium Bonds Worth it?

It is estimated that there is over £80 billion invested in Premium Bonds in the UK, from a total of approximately 21 million investors. If you are thinking about investing in Premium Bonds, then you may be wondering if it is the best option which is available to you. The following guide will give you all the information you need in order to make an informed decision about whether Premium Bonds are right for you.

What Are Premium Bonds?

Premium Bonds are a savings product that is offered by National Savings & Investments, which is and Executive Agency of the Chancellor of the Exchequer.

When you hold Premium Bonds you have the chance to win between £25 and £1 million every month. This prize money is paid instead of interest. Therefore it is not guaranteed that you will get any return on your savings.

What Are The Pros & Cons Of Premium Bonds?

There are both advantages and disadvantages to saving in the form of Premium Bonds.

Advantages

  • You have the chance to win £1 million of tax-free cash.
  • NS&I are backed by the government so there is no possibility of you losing your money.
  • You can get instant access to your money when you need it.

Disadvantages

  • The odds of you actually winning the £1 million are very much against you.
  • You will not earn any interest on the money you have saved.
  • The rate of inflation may mean that the Premium Bonds are worth less today than the day you bought them.

Who Would Benefit From Buying Premiums Bonds?

If you are not worried about earning interest and like the idea of being able to win a large sum of money, then Premium Bonds are likely to suit you.

Investing the maximum amount of money in Premium Bonds gives you the best chances of winning a prize, and so if you have this money to invest, then this another reason why you may choose Premium Bonds.

People that have several other investments such as ISAs and assets may also choose Premium Bonds as an additional option that is different to the existing accounts that they have.

How Do You Buy Premium Bonds?

The easiest way to buy Premium Bonds is to do so via the NS&I website. If you want to purchase a regular amount, then you can set up a standing order from your bank account. You can also buy Premium Bonds over the phone or by bank transfer. If you want to pay by cheque you will need to fill in an application form and send this along with the cheque by post.

The minimum amount of Premium Bonds that you can buy at one time is £25. You can have up to £50,000 in your account.

What Are The Current Premium Bond Prizes?

Premium Bond prizes are organised into high, medium and lower tiers.

The higher and medium tiers are both allocated 5% of the prize money each. The remaining 90% is used for the prizes in the lower tiers.

At the time of writing the estimated number of winners for each prize is as follows.

Higher Tier

  • £1 million – 2 winners
  • £100,000 – 5 winners
  • £50,000 – 11 winners
  • £25,000 – 21 winners
  • £10,000 – 53 winners
  • £5,000 – 104 winners

Medium Tier

  • £1000 – 1839 winners
  • £500 – 5517 winners

Lower Tier

  • £100 – 29,884 winners
  • £50 – 29,884 winners
  • £25 – 3,131,931 winners

What Are The Odds Of Winning?

The currents odds of winning a prize through Premium Bonds is 34,500 to 1.

How Much Do You Need To Hold To Potentially Win £1 Million?

In theory, everyone that holds Premium Bonds has an equal chance of winning one of the £1 million prizes. However, in practice, the more Bonds that you have, the more chances you have to win. It is not very often that a winner of the £1 million prize holds less than £30,000 in Premium Bonds.

The Money Saving Expert site worked out that the odds of winning £1 million with Premium Bonds is 51,063,525,579 to 1. This is far greater than the odds of winning the Lotto jackpot which are 45,057,474. One thing to bear in mind though is that when you play the lottery, if you don’t win then that money is lost which is not the case with Premium Bonds.

How Can You Check Whether You Have Won?

A draw for Premium Bonds takes place every month and there are several ways to check whether you have won.

– Using the Premium Bonds app. The app can tell you if you have won and how much, and it also has a number of other useful features. It will also show you the results of the previous six draws and whether you have any unclaimed prizes.

– Checking the NS&I website. You can enter your holder’s number directly into their prize checker and this will tell you whether you have won.

– Performing a general online search. You can search online for the month and year you are interested in. This search may not give you specific winners, but it will tell you the where the winners live and the value of the bonds that they hold.

How Will My Prize Be Paid?

If you win a prize, then you can choose to reinvest the amount in your Premium Bonds account or have the money paid directly into your bank account. If you already have the maximum amount in your account, then any prize will automatically be paid into your bank account.

What Happens To Premium Bonds When You Die?

Any money that you hold in Premium Bonds would form part of your estate that is left behind after you have died. If you have a will, then the executor will distribute the Premium Bonds according to your wishes.

If you do not have a will then you will be considered to have died intestate. In this case an administrator will be appointed to divide up your estate according to the rules of intestacy. The bonds will form part of this estate.

How Do You Cash In Premium Bonds?

There may come a time when you want to withdraw some money from your Premium Bonds account. This could be all the money you have saved in your account, or just a percentage of it.

The easiest way to withdraw money from Premium Bonds is to set up an online account with NS&I. You can withdraw your money immediately through this account.

If you do not have an online account, and do not want to set one up, then you can request a withdrawal via telephone. There is a form to fill out if you choose this method, but the adviser that you speak to can help you with this.

You can use either method to withdraw just some of the money you have in Premium Bonds, but you will need to specify that you don’t want to take all your money out.

Conclusion

The decision about whether Premium Bonds are worth it for you depends a lot on your personal circumstances and preferences.

There is a chance that you could have money invested in Premium Bonds for many years and never earn a penny because you have never been lucky enough to win. Inflation can also reduce the amount that your holdings are worth.

For some people, this is not worth the risk and they prefer to invest their money in a product that gives a guaranteed return. However, others are happy to take the risk of earning nothing in order to be in with a chance of earning a large sum of money.

The prizes in the higher tiers tend to go to people who have the maximum amount of money saved in their Premium Bonds account, or certainly very close to it. Therefore, this type of investment may be more suited to you if you have at least £50,000 to put into your account.