Premium Bonds: A Guide to National Savings’ Lottery

What are Premium Bonds?

Premium Bonds are a savings product issued by National Savings and Investments (NS&I), a government-backed savings organisation in the UK. Unlike traditional savings accounts, they do not pay interest. Instead, bondholders are entered into a monthly prize draw for a chance to win tax-free cash prizes.

Contents

What are Premium Bonds?How do they work?Key Features and Benefits Eligibility and Purchasing Understanding the Prize Draw Challenges and Misconceptions FAQs

How do they work?

When you buy Premium Bonds, you receive a unique number for each £1 bond purchased. These numbers are then entered into a monthly prize draw. The prizes range from £25 up to £1 million, with multiple prize tiers. The more bonds you hold, the more chances you have to win, up to the maximum holding limit.

Key Features and Benefits

Tax-free prizes: All winnings are free from UK income tax and capital gains tax.
100% secure: Backed by HM Treasury, your investment is safe.
Flexible: You can buy, hold, or cash in your bonds easily.
Chance to win: Offers the thrill of a lottery with the security of savings.

Eligibility and Purchasing

You must be 16 or over and a UK resident to buy Premium Bonds. They can be purchased online via the NS&I website, by phone, or by post. The minimum investment is £25, and the maximum holding is £50,000.

Understanding the Prize Draw

The prize draw uses a random number generator called ERNIE (Electronic Random Number Indicator Equipment). The odds of winning a prize depend on the total value of bonds held. While there’s no guaranteed return, the prize fund rate indicates the average return across all prize-winning bonds.

Challenges and Misconceptions

Some people believe Premium Bonds offer poor returns compared to other savings. However, the tax-free nature of prizes can make them highly attractive for higher-rate taxpayers. It’s also a misconception that you can lose your initial investment; your capital is always secure.