What is a premium bond and how do they work
First introduced in 1956, Premium Bonds are now owned by around 23 million people in the UK. Premium Bonds are an investment product issued by National Savings and Investment (NS&I), backed by HM Treasury.
What are premium bonds
They are effectively a savings scheme that will let you deposit from £25 up to a maximum of £50,000. Unlike other investments, where you earn interest or a regular dividend income, you are entered into a monthly prize draw. For every £1 you invest, you will receive a bond with a unique number that gets entered into a monthly prize draw. Each month, every bond will be re-entered into a new draw until the day you decide to cash them in.
How does the prize draw work
Each month, the Electronic Random Number Indicator Equipment (or ERNIE for short) picks out the winning numbers. You will have a 1/26,000 chance of winning a prize for each bond (£1 invested). Therefore, the more you put in, the higher the chance of winning a prize.
The prizes are split into three bands:
- Lower value (90% of prize fund) with prizes including £25, £250 and £100.
- Medium value (5% of prize fund) with prizes including £500 and £,1000.
- Higher value (5% of prize fund) with prizes including £5,000, £10,000, £25,000, £50,000, £100,000 and £1 million.
When might they be for you
- Want the chance to win tax-free cash prizes each month.
- If you are a parent, guardian, grandparent or great grandparent wanting to buy for a child under 16 years old.
- Have £25 or more to invest.
- The ability to withdraw your money at any time.
- Guarantee of safety of your money backed by the government
When they might not be for you
If you are looking for:
- Regular income – no interest earnt on your money
- Guaranteed returns – you may never win a prize
- Concerned about impacts of inflation – with no returns each year, your money will lose value
