Could Premium Bonds be better than a savings account?
Having a savings account is important. It means you’ll have some money set aside in case of an emergency.
But the rates offered on savings these days are fairly poor. Presented with such low rates, many people may not see the point of saving at all.
However, if you do not have a savings safety net in place, you’ll find it much harder to deal with any sudden spending requirements that crop up, such as a new boiler or car repairs.
Premium Bonds are a potentially attractive method of saving. At the very least, it’s good to keep savings separate from your current account. That way, you’re not tempted to spend the ‘extra’ cash on things you don’t need.
Premium Bonds offer you the chance to win up to £1 million with no risk of losing money. But they don’t pay interest either.
What are they and how do they work?
What is a Premium Bond?
A Premium Bond is a type of bond that is issued by National Savings & Investments (NS&I). NS&I is a state-owned savings bank. It offers various accounts such as ISAs and other savings and investments products.
Bonds are worth £1 each, though you need to initially invest at least £100. Bonds can be bought in units of £10 after the first £100 paid into the account.
Each Bond has a unique number that is entered into monthly prize draws. Each Bond has an equal chance of winning a tax-free prize, but you can increase your chances of winning by holding more entries. The top prize is £1 million.
Someone who has £100 in Bonds would have 100 entries to the draw. Someone with £10,000 would have 10,000 entries to the draw.
The draw takes place monthly, and numbers are drawn by a random number generator called ERNIE. That’s short for Electronic Random Number Indicator Equipment.
How much can I invest?
You can hold Bonds worth up to £50,000.
So you can own a maximum of 50,000 entries in the draw.
How do I buy Premium Bonds?
You can sign up to buy Premium Bonds with NS&I. You can apply online. They will then send you a letter to confirm that they've opened your account.
Do you already have a Premium Bonds account but no online account? You'll need to fill in a registration form then post it to NS&I.
You can request to sell your Bonds via the website, which will result in a cash payment for them. Each Bond is always worth £1.
It might take a couple of business days to process a withdrawal request. But there’s no penalty for making a withdrawal at any time.
What prizes are on offer?
There are two prizes of £1 million each month, two £100,000 prizes, six £50,000 prizes and nine £25,000 prizes. There are lots of smaller prizes, with over 2,000,000 £25 prizes given away each month. To see a full breakdown, see NS&I’s prize table.
Each Bond is an individual entry to the draw. This means that it is possible to win more than one prize in a month.
Prize values can change over time, as can the number of prizes on offer for each band of prizes.
What if I don’t win anything?
While you might win a massive cash prize, there’s no guarantee that you will ever win anything.
You could hold £50,000 in Premium Bonds for fifty years and never win a penny. Or you might win a decent prize every month, or even hit the jackpot twice. It’s all down to chance.
With interest rates so low, you might decide it’s worth having a go. Or you might like the slow and steady approach of putting your money in an easy access account and hoping for a rate rise soon.
Remember that as time goes on, things become more expensive. This is called inflation. Premium Bonds don’t pay interest, and your investment remains the same. You may then find that you are able to buy less with the same amount of money in the future.
How safe is my money?
It’s important to note that all money saved with NS&I is guaranteed by the Government. That’s different to normal savings accounts, which are usually covered by the Financial Services Compensation Scheme (FSCS). This only offers £85,000 cover per person, per institution. So if you have a lot in savings, you need to save it across different accounts in order to ensure it is completely covered.