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NS&I says the chances of each £1 bond winning a prize are 21,000 to 1 as of its next draw, meaning the annual “interest rate” is currently 4.65pc. However, your money doesn’t actually earn interest – they only way to get returns on your cash is by winning a prize. In this guide we will cover:
Strictly speaking, Premium Bonds are not savings products. They don’t pay interest. Instead, each £1 invested buys a unique bond number, which is entered into a monthly prize draw.
You can hold between £25 and £50,000 of Premium Bonds, meaning up to 50,000 numbers have the chance of being picked for a prize each month.
A machine nicknamed “Ernie” (which stands for “Electronic Random Number Indicator Equipment”) randomly selects winners, who can receive from £25 to £1m – but there are only two £1m prize winners each month.
You can earn far higher rates from fixed-rate bonds offered by banks and building societies if you are prepared to lock your money up for a year or more – see the best rates here.
On the other hand, you could eclipse any interest you could possibly earn with a savings account by winning a valuable prize (but the odds are you probably won’t).
You must be 16 or over to buy Premium Bonds. This can been done online at nsandi.com, over the phone (freephone 08085 007 007) or by completing an application form and posting to: National Savings and Investments, Glasgow G58 1SB.
It is also possible to set up your account so that prizes are automatically reinvested in new bonds. As with other types of investment, this allows your money to benefit from compounding interest.
Children under 16 can hold bonds, but their accounts must be controlled by a parent or guardian. Once they turn 16, they can take control.
Anyone can buy Premium Bonds for a child – like adults, they can hold up to £50,000 and they could also win up to £1m.
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