If you put money into premium bonds, I have some news for you! From January onwards they are increasing the chance of winning a larger sum of money (>£100) and reducing the smaller sums (<£100). This is because of competition with other types of savings accounts offering higher interest rates (more on this later!).
If you don’t yet save money into premium bonds, then here’s a run down to explain what they are to help you decide if now is the right time for you to buy some.
What are premium bonds?
To answer this question, you first need to know what bonds are. Bonds are released by governments or companies to raise money for things they need to do/buy. When buying bonds, we’re effectively lending money to a government or company. Premium bonds were started in 1956 and are released by the UK government and in return, they give lenders a chance to win cash prizes each month they have the money held within bonds (which is unique to this type of bond).
For all the money saved into bonds, the government pays interest of 2.2% to borrow the money paid in. The 2.2% (raising to 3% in 2023 – see below) is offered out on a monthly basis in the form of cash prizes instead of guaranteed interest to each bond holder.
Is it easy to buy premium bonds?
You need at least £25 to purchase premium bonds and it’s free to open an account and hold money in bonds. The great thing is you don’t need a monthly direct debit, so you can just deposit when you can. You can buy online, by phone, by post and by direct bank transfer.
Every £1 deposit of money comes with a premium bond number and these numbers are put into a monthly lottery. (see below).
You have to have money held in the account for one full calendar month before you can be entered into the prize draws and you can have a maximum of £50,000 held in the account. If you win, you don’t pay tax on your winnings.
There are two ns&i apps you can download once you have purchased premium bonds. One goes directly to your account, and the other can be used to easily check if you’ve won.
Once purchased, it can take a little while for the bonds to show up in your account, so don’t panic, they will appear eventually! You’ll receive an email or letter confirming receipt of the money and the bonds being purchased.
Are premium bonds worth it?
Each £1 purchased carries a unique number like a lottery ticket number. The winners are chosen by Ernie, the NS&I’s ‘Electronic Random Number Indicator Equipment’. Ernie is a computer that generates random numbers which determine the winners.
The chance of winning a prize each month is 24,000 to 1.
For context, the chance of winning any prize in the UK national lottery is 1 in 10 and the odds of matching all six numbers to win the jackpot are 1 in 45,057,474.
There is a chance therefore of not winning anything, ever.
I asked my family how much they had won while holding premium bonds and I’ll give you one of their examples:
£30,000 held in premium bonds for 12 months
£400 winnings over the 12 months
£400/£30,000 x100 = 1.33% this was over a 12 month period (0.11% per month if averaged out).
If no more prizes are won ever, then the 0.11% gets even smaller.
Contrast this to some savings account with a regular guaranteed interest amount, and suddenly it doesn’t look quite so rosy.
So if they’re not great for making my money grow, why buy them?
The first thing is that bonds are seen as safe bets. They are backed by the UK government who will repay the money. Contrast this to investing money in the stockmarket, especially with big value drops and fluctuations and you can start to understand why people prefer bonds.
The second is the chance of a win. I think many of us like a “little flutter” on the lottery every now and then, and this is a way to do that without wasting money on lottery tickets.
What are the changes happening in 2023?
In 2023 the interest rate that the government pays into the pot will be rising to 3% to try and keep it more inline with other savings options people have. There are no guarantees of making 3% personally though. The prize distribution is also changing.
To give you a sense of how it will change see the table below (source: Which?):
The chance of winning the lower amounts is going down, but the higher amounts are increasing.
What happens to any winnings?
You can choose to withdraw them as cash, or can have them reinvested up to the maximum of £50,000. The prizes are tax free, so if you win big, you keep it all.
How safe are premium bonds?
NS&I are part of the UK government, so they say on their website that they can guarantee that 100% of your money is safe. There is two-factor authentication to get into your account, so as long as you’re not careless with your log in details, your money is safe.
Are premium bonds easy to withdraw or locked up?
The money is easy access (so you can take it out any time) but it can take a few days to see the money show up in your account when you withdraw, so make sure you leave enough time. Unless you request it, your oldest bonds will be cashed out first.
How do I find old premium bonds (including those of people who have died)?
If you need to track down premium bonds of someone who has died, and you are legally entitiled to claim the savings, then you’ll need to fill out an online form.
You’ll need the following information to hand:
- The customer’s personal details (full name, address, date of birth, date and place of death);
- Spouse name (if applicable);
- Full name of the executor(s) if there is a Will, or administrators if there is no Will (if you’re obtaining a Grant of Administration or Confirmation of Executor Dative);
- Type of NS&I account(s) the customer held;
- Details of the person who is making the claim;
- Bank account details to pay the money in to.
To track down old premium bonds, you can use the ns&i website to either log in (if you have your bond holder number), or request a replacement bond record. You can also fill out an online or paper form to track down old bonds you may have forgotten about and you can have them added to your online account.
How do I check if I’ve won?
There are a few ways. One is to download the ns&i prize checker app and log in each month to check. You will need your ns&i holder number which you will be told when you first purchase premium bonds.
Another way is to opt in for post-notification, so an envelope will land with the happy news on it. There is also a way to check on the ns&i website.
Are premium bonds the best way to save my money?
I think they have their place, and if you’re needing a place to store your emergency fund, or money you can’t lock up because you need it soon, then premium bonds are a fun way to save. There is always the chance of winning big of course!
However, if you’re trying to grow your savings, then there are other savings accounts out there that offer guaranteed interest. You might not win anything with premium bonds.
Can I buy premium bonds for other people?
They make a great gift for children under 16 and can be easily purchased for them. If buying for someone else’s child under 16, the child’s parent/guardian will hold the account until they are 16, then the child can freely access the money. You will take responsibility of your own child’s premium bonds if you buy for your own child.
You can only buy Bonds for someone aged 16 or over if you hold a Power of Attorney or Court of Protection for that person. If you don’t hold either of these documents, they would need to buy the Bonds themselves.
Can I buy premium bonds if I don’t live in the UK?
Yes, but not every country will allow this. The US for example has strict rules about gambling and lottery which may make it difficult for you to hold them. You also need a UK bank account and payments (and winnings) can only be processed in pounds sterling. The best thing to do is speak to ns&i directly to check your own country and whether you would be allowed to have them.
Are premium bonds the same as investing?
Definitely not. I see a lot of people say they are “investing” in premium bonds, but I think you have to be clear in your mind about investing vs. saving. Investing involves risk. You are putting your money into a fund of shares, or directly into individual shares, and the risk is on how they perform.
If you put money into one company and it goes bust, you lose all of your money. If a fund performs badly, on paper, you lose money, but you only physically lose money when you cash them out. Equally, if the company/companies do well, then you stand to gain from them over time.
The same also goes for investing in company or government bonds. There are not to be confused with premium bonds though. UK gilts (which is the other word for bonds) are very different, and when purchased, they offer a guaranteed return on your investment into them.
Premium bonds offer no such guarantee. You could hold premium bonds for years and not gain anything from it.
Over time, inflation causes the things you buy to get more expensive to purchase (something we’re all too well aware of at the moment). This means the money held in premium bonds becomes less and less valuable over time.
Putting money into premium bonds is NOT the same as investing, and there are no guarantees of winning anything. The money held in premium bonds is eroded by inflation in the same way that normal savings are, so if you want to beat inflation, you will need to learn how to invest.
They’re a fun way to get people saving money though, so could be a great thing to involve your whole family in (we all whatsapp eachother when the prizes are released to compare who won – FYI I’m not doing so well at the moment, whereas my mother in law seems to win every month!!).
I think it’s worth checking them out, but I don’t think it’s the only thing you can do with your money – it’s just a small part of the wider eco-system that is your finances.
I hope that helps! Until next time,
Dr Nikki x