Premium Bonds (National Savings & Investment)

Premium Bonds were first introduced in 1956, with the aim of encouraging people to save thanks to the lure of cash prizes. Premium Bonds are tax-free, and so any money that you win is yours to keep in its entirety. Instead of rewarding savers with regular interest, Premium Bonds give you the chance to win cash prizes each month in a prizedraw. You will be given a specific bond number for each £1 that you invest, and these numbers will be entered into the draw: if one of your numbers is selected, you win a cash prize. You can invest a minimum of £100 and a maximum of £30,000 in Premium Bonds.

This type of savings and investment is seen as a fun way to invest: you have a chance to win money, without losing any nor risking your invested capital. If you like, it is almost like investing in the stock market without the risk that the value of your shares could fall. The only drawback to investing capital in Premium Bonds is that there is no protection against inflation: the value of your invested capital will not be increased in line with increases in prices over time, and so you may be able to buy less with your capital in the future than you can when you first invest it. If you win a cash prize, you will usually be contacted by someone from National Savings & Investment, whereupon you can choose to reinvest your prize money or receive it as a tax-free lump sum.

Operation of Premium Bonds
Although you must purchase a minimum of £100 of Premium Bonds, you will receive a bond number for each £1 you invest. Every number is automatically entered into a monthly prize draw, and if your number is drawn you will be contacted and informed that you have won a prize. You can win prizes in one of three tiers:

The Higher Tier

• £1,000,000
• £100,000
• £50,000
• £25,000
• £10,000
• £5,000

Middle Tier

• £1,000
• £500

Lower Tier

• £100
• £50

There are a different number of prizes available at each level, with many £50 prizes but only two one million pound prizes available each month. Each bond number has an equal chance of winning a prize: if you invest only one hundred pounds, there is no reason why you should not win one million pounds. However, the more you invest the more bond numbers you will have, and therefore the greater the chance that one of your numbers will be drawn.

This investment is totally secure, but Premium Bonds can not really be considered as investment options if you are hoping to increase the value of your capital over time, for example to finance retirement plans. Premium Bonds are a great addition to an investment portfolio, because they involve an element of chance and fun. However, there is no guarantee that your bond numbers will ever be drawn, and therefore no guarantee that you will ever win any money.

You can invest in Premium Bonds either online at nsandi.com using a debit card, or by post sending a cheque or an order for a direct debit payment. Details of the investment application can be found on the National Savings and Investment website (nsandi.com). Once you have invested you are able to withdraw some or all of your funds, which will be paid directly into your current account or sent to you by post as a personal cheque.