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The Week
The Week
National
Marc Shoffman

What are the prizes for Premium Bonds?

Millions more pounds to be paid out in tax-free windfalls as prize-fund rate keeps climbing

Savvy savers are being offered the chance to win record prizes by putting their money into Premium Bonds.

The prize-fund rate on the government-backed products has increased from 4% to 4.65% for the September draw – the highest level since March 1999. The hike is the eighth in just over a year, to “keep up with competition in the savings market” amid Bank of England rate increases, said MoneyWeek

Premium Bonds “remain the nation's best loved savings product”, said This is Money, with roughly 21 million customers hoping to win big-money prizes in the monthly draws.   

What are Premium Bonds? 

Launched in 1956, Premium Bonds have been used by governments to raise funds and are issued by state-owned savings bank National Savings & Investments (NS&I).

Unlike investments offering savers interest or a regular dividend income, Premium Bonds offer customers the chance to win between £25 and £1m tax-free in a monthly prize draw. “It’s simple, and similar to a lottery,” said Unbiased.co.uk

Premium Bonds are drawn at the beginning of each month, using a random number generator nicknamed ERNIE (Electronic Random Number Indicator Equipment) to choose the winners of prizes that are banded into higher value (£5,000, £10,000, £25,000, £50,000, £100,000 or £1m), medium value (£500 and £1,000) and lower value prizes (£25, £50 and £100). 

Savers must deposit a minimum of £25 and can put a maximum of £50,000 into the accounts. “With every entry you make, your chances of winning increase up to a maximum of £50,000 of investment,” added the financial advice site, so “as the old adage goes, ‘you’ve got to be in it, to win it’”.

You can purchase Premium Bonds for yourself or for a child aged under 16 by phoning the NS&I customer helpline or on the NS&I website. 

As part of the application, you will need to provide your address, date of birth, and bank account details. If applying for your own child, you will need to provide their date of birth, proof of identity, and address.

 You can also buy Premium Bonds for someone else’s child, but will need to nominate a parent or guardian to manage the account until the child is 16. 

Applications can take seven to 10 days to process, and you may be asked to provide extra documents to prove identities.

What is the Premium Bonds prize rate?

The “nearest thing Premium Bonds have to an interest rate”, said MoneySavingExpert, is the annual prize rate. This rate is a benchmark of the “average” return investors get for their money – “though in reality, there’s no guarantee you'll win anything”. 

The rate increase to 4.65% from September means that for every £100 invested in Premium Bonds, £4.65 will be paid out of the prize fund. So the hike from 4% adds £66 million, taking the “total prize pot” to £470 million, said MoneyWeek.

The odds of winning will also improve “from 22,000 to 21,000 to 1 – their best level since April 2008”. 

The number of £100,000 prizes up for grabs will increase from 77 in August to 90, while the number of £50,000 prizes will jump from 154 to 181. A total of 360 estimated payouts of £25,000 will be made (up from 307), and 902 of £10,000 (up from 769).

The number of £5,000 prizes will also increase, to 1,803, as will prizes of £1,000 (18,832), £500 (56,496) and £100 (about 2.3 million).

Are Premium Bonds a good investment? 

The prizes are tax-free, plus NS&I is backed by the Treasury, “so 100% of your money is safe”, Which? said. By contrast, a maximum of £85,000 of money held in a savings account is protected by the Financial Services Compensation Scheme if a provider goes bust. 

However, money held in savings accounts or an Isa will earn a rate of interest, but Premium Bonds will not. It’s a lottery, so “there is a chance you could win nothing at all”, the site continued. “And, as your savings won’t be earning any interest, they will effectively lose value over time due to inflation.” 

The newly hiked effective interest rate of 4.65% on Premium Bond prizes is also “still lower” than the leading rate of 5% on easy-access accounts, said the BBC’s cost-of-living correspondent Kevin Peachey, with “even better returns” on deals that lock-in savers’ money for longer. 

The odds of winning are also relatively low. According to MoneySavingExpert, if you lined up everyone with £1,000 worth of Premium Bonds in order of their year’s winnings, “you'd need to walk past 60% of the line until you hit the first £25 winner”. 

All the same, Premium Bonds may be attractive to people who do not want to put their cash in a fixed-term savings account or take “the more risky route of investing in the stock market”, said The Times Money Mentor. You can withdraw cash held in Premium Bonds at any time without penalties. 

And despite comparisons to playing the lottery, said The Money Edit, with Premium Bonds, “if you don’t win you still get to keep your money”. Plus “if all else fails”, the site added, “Premium Bonds offer a bit of fun on the second working day of the month”. 

Marc Shoffman is an award-winning freelance journalist, specialising in business, property and personal finance. He has a master’s degree in financial journalism from City University and has previously worked for the FT’s Financial Adviser, the financial podcast In For a Penny and MoneyWeek. 

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