Are NS&I Premium Bonds worth it? - Times Money Mentor (2024)

Government-backed NS&I will cut its Premium Bonds prize rate in March, for the first time since 2020. In September, it raised thePremiumBondprize fund to the highest rate in more than 24 years but the chances of winning are still only 21,000 to 1. Here we ask if Premium Bonds are worth it.

The “prize rate” on Premium Bonds increased from 4% to 4.65% in September to keep up with rising interest rates on other savings accounts. This added an extra £30 million more in prize fund money. But the big jackpot is still only awarded to two winners each month.

Furthermore, NS&I has announced that it will cut the Premium Bonds prize rate from 4.65% to 4.4% from March’s draw. This is likely due to the fact that it has secured adequate investment in recent years.

“Put simply, the NS&I no longer needs to attract new cash, and the savings bank can now afford to row back on its generous offerings,” says Myron Jobson of Interactive Investor. “Savers might need to brace themselves for less generous offerings from the NS&I going forwards.”

NS&I announced that August’s lucky bondholders are from Hereford & Worcester and Essex, each winning £1 million in tax-free cash.

In this article, we explain:

  • What are Premium Bonds and how do they work?
  • Are Premium Bonds worth it?
  • How can I buy Premium Bonds?
  • Have I won Premium Bonds? How to check
  • When are Premium Bonds drawn and what are the prize amounts?

The rates on a whole host of other NS&I accounts are also increasing. Check out how they compare to the best savings accounts on the market right now.

What are Premium Bonds?

Premium Bonds were introduced in the late 1950s to encourage Britons to save following the end of the second world war. Savers would be entered into a monthly prize draw where they had the chance to win £1,000. The jackpot is now 1,000 times larger.

Rather than offering a guaranteed interest rate, you have the opportunity to win tax-free cash prizes of between £25 and £1 million every month. Since 1 September 2023, the annual prize fund interest rate has been 4.65%. This will fall to 4.4% in March.

While your cash won’t grow while it’s invested, you could win a £1 million jackpot. Or you could win nothing at all.

If you are lucky enough to win one of the larger prizes then our guide on how to invest £10,000 is packed full of investing tips for beginners.

Premium Bonds are offered by National Savings and Investment (NS&I) which is backed by the Treasury, meaning that all of your money is safe. To add an extra level of security, they are also regulated by the Financial Conduct Authority.

While they offer a fun alternative to an easy access savings account, the odds of earning anything is a lot lower.

Your savings also aren’t protected from the eroding effect of inflation.

Read more: What is the personal savings allowance?

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Are Premium Bonds worth it?

Premium Bonds could be worth investing in if you:

  • Have a lot of money to save (the more bonds you have, the bigger your chance of winning a prize)
  • Pay tax on savings interest (and have already used up your annual cash ISA allowance)
  • Like the idea of a prize draw (you could win big, but you also may not win anything)

It comes down to the type of person you are. Does the element of surprise give you the feel-good factor? How would you feel if you didn’t win anything?

Read more:

How can I buy Premium Bonds?

You buy Premium Bonds through the NS&I website.

Alternatively, you can buy over the phone by calling 08085 007 007 (or +44 1253 832007 if you’re outside the UK).

How much can I invest in Premium Bonds?

You can invest from as little as £25 in Premium Bonds and hold a maximum of £50,000. This would give you between 25 and 50,000 entries in the monthly prize draw.

Every £1 you invest is given a unique number. All of these numbers are put into a computer called Ernie (Electronic Random Number Indicator Equipment) which randomly draws out winners.

Have I won premium bonds? How to check

You can go to the online prize checker on the second working day of the month.

There is also a Premium Bonds prize checker app available for iPhones and Androids.

When are Premium Bonds drawn and what are the prize amounts?

The draw tends to take place in the last few days of the month so that NS&I is able to do all the checks it needs to before announcing the winners.

NS&I publishes the big prize Premium Bond winners on the first working day of the month.

The monthly prize draw offers winners between £25 and a life-changing sum of £1 million. Here’s a breakdown of the amounts you could win:

  • £25
  • £50
  • £100
  • £500
  • £1,000
  • £5,000
  • £10,000
  • £25,000
  • £50,000
  • £100,000
  • £1,000,000

Each month, two Premium Bond holders win £1 million while six bondholders win £100,000.

You can opt to have winnings paid straight into your bank account or to receive them by post in the form of a warrant (like a cheque).

Are NS&I Premium Bonds worth it? - Times Money Mentor (3)

What is the average rate of return on Premium Bonds?

You don’t get a Premium Bond interest rate like you would have with most savings products, instead they have an average rate of return.

For every £1 bond, the odds of you winning a prize are 21,000 to one, so pretty slim. This translates to a “prize rate” of 4.65% (though this will fall to 4.4% from March’s prize draw onwards).

But there are two points to remember about these calculations:

  • You may not win any Premium Bond prizes, in which case even a low-interest rate savings account would have been better
  • The more you have in Premium Bonds, the bigger your chances of winning (this is not reflected in the 4.65% prize fund rate, which is just an average for everyone)

Should I buy Premium Bonds?

Around 21 million Brits hold Premium Bonds, but whether they are a good idea for you depends on your financial circumstances.

It may not be a good idea to put all of your life savings in Premium Bonds because you likely won’t earn enough to keep up with inflation (unless you are very lucky and win a big prize).

Other things to bear in mind:

  • It is a bit like gambling so there is no guarantee you will win anything and you would get a higher rate elsewhere
  • You will likely earn more money by contributing into a savings account instead

But if you have invested most of your savings and have several thousand pounds in cash, investing in Premium Bonds might be a good option.

Where buying Premium Bonds can really come in handy in this regard is if you have a large amount of money.

Like everything else in the NS&I stable, the whole lot is protected by the Treasury.

If you are fortunate enough to win really big money, check out how to invest £50,000.

Read more: What is Omaze and is it legit?

What are the advantages of putting money in Premium Bonds?

1. Your money is protected

Premium Bonds are sold by National Savings and Investments (NS&I), which is owned by the government. This means that customers’ money is 100% protected.

This compares to bank and building society savings accounts, which in the event of the provider going bust, are regulated by the Financial Services Compensation Scheme. The FSCS only protects deposits up to £85,000 per person, per institution.

However, the maximum you can put into Premium Bonds is £50,000, so if you opted to put that in a high street bank account instead, you would effectively get the same protection.

2. They are tax-free

Another perk for some people is that Premium Bond prizes are tax-free.

I say it is a perk for some people because most of us have a personal savings allowance (PSA).

This means:

  • Basic-rate taxpayers can earn up to £1,000 in interest on their savings each year without paying a penny in tax
  • Higher-rate payers can receive up to £500 interest tax-free
  • Additional-rate taxpayers (those who pay the top rate of 45% income tax) don’t benefit from the PSA

The allowance means most people don’t pay any tax on their savings interest, so Premium Bonds wouldn’t have any real tax advantage.

But it’s still reassuring to know that if you do win a big cash prize, it is completely tax-free.

3. You can reinvest

There is also a type of compound interest effect when you win with Premium Bonds.

Rather than take the cash, you can have the money reinvested (unless you already hold the maximum £50,000).

Your winnings can buy more bonds. So every £1 you invest buys another bond, whose unique number is entered into the monthly prize draw.

This means your chances of winning increase.

4. An easy access option

Putting money in Premium Bonds could be worthwhile if you’re looking for a temporary home for your cash, and might need fairly quick access to it.

You may not want to tie your cash up in a fixed-term savings account (where you lock up your money up to get a better interest rate), or take the more risky route of investing in the stock market.

You can withdraw your cash from Premium Bonds at any time via the NS&I website (although it can take up to eight working days for the money to arrive in your bank account).

What are the disadvantages of Premium Bonds?

It is a gamble. You could win £1 million, but you could win nothing.

In that respect, Premium Bonds are a form of gambling rather than being a savings or an investment account.

However, it’s worth remembering that it’s only the “interest” that is a gamble. The actual cash you put into Premium Bonds is safe and remains intact.

What are the odds of winning on Premium Bonds?

Currently, you have a one in 21,000 chance of winning the lowest prize of £25 each month for each £1 bond number.

But these sorts of calculations are tricky and should not be relied upon. This is because there are multiple prizes each month. For example, you could win several £25 prizes and even scoop a £50,000 prize all in the same month.

The value of the total prize draw also changes each month as it reflects the number of bonds that customers have.

Also bear in mind that you don’t get these prizes in the same way that interest rates guarantee a return when you put your money in conventional savings accounts.

What are the odds of winning the Premium Bond jackpot?

If you fancy the £1 million jackpot, of which there are two lucky winners each month, then for every £1 bond you hold, in one month, you have a one in59,082,205,208 chance.

The chance of winning the £1 million jackpot over the course of a year (or 12 monthly prize draws) is one in 49,563,028 if you have £100 in Premium Bonds.

If you have £1,000 invested, the odds of winning are one in 4,954,991. And if you have the maximum £50,000 in bonds, your chances increase to one in 96,839.

Each £1 bond has an equal chance of winning. So to boost your chances, the more you buy, the more your chances improve in the monthly prize draw.

So don’t start lingering on any big Premium Bond prize daydreams about property, cars or giving up your job just yet.

If you think you might prefer a regular interest rate: Top savings accounts in 2024.

How do Premium Bonds compare with savings accounts?

The nearest thing Premium Bonds have to an interest rate is their “annual prize fund interest rate”, which is currently 4.65%. This refers to the average prize pay out. If you’re planning on buying bonds soon, note that the prize rate will fall to 4.4% from March onwards.

However, the odds of winning nothing can be high depending on how much you have invested and the calculations are not straightforward.

The interest rate applies to the average customer who has an average amount of luck. In other words: the rate doesn’t mean anything to those people who don’t win anything because for them the interest rate is zero.

The annual prize fund rate can be used as a guide when comparing Premium Bonds to putting money in a savings account, where you do have a guarantee of earning interest. Furthermore, savings rates currently beat the Premium Bonds annual prize fund rate across the board.

We have crunched some numbers to see how Premium Bonds would compare with savings accounts for three different sums of money if the prize rate were to be 4.65%.

How Premium Bonds compare with savings over a year:

Premium Bonds with a 4.65% prize fund rate

  • £1,000 (£25 won)
  • £5,000 (£225 won)
  • £20,000 (£925 won)

Best online easy access account with 5% interest rate

  • £1,000 (£50 earned)
  • £5,000 (£250 earned)
  • £20,000 (£1,000 earned)

Best one-year fixed saver account with a 5.3% interest rate

  • £1,000 (£53 earned)
  • £5,000 (£265 earned)
  • £20,000 (£1,060 earned)

In summary: you will likely earn more if you can lock your money away for at least a year in a fixed savings account rather than in premium bonds. But you can’t win a million pounds with a savings account!

Plus, with Premium Bonds your funds need only be locked away for a month to be in with a chance of winning a prize.

Can I buy Premium Bonds for my children or grandchildren?

You can buy Premium Bonds for any child – a fun and educational gift.

Until the child reaches the age of 16, the parent or guardian nominated on the application takes care of the bonds, no matter who buys them. That nominated person will be sent the bond number and record, any prizes won and payment for cashed-in bonds until the child turns 16.

You can buy Premium Bonds for kids either by visiting the NS&I gift page, or by filling in an application form and posting it to: NS&I, Sunderland, SR43 2SB.

If you are a grandparent, wanting to give your grandkids a financial leg-up, check out our article: Five ways to invest and save for grandchildren.

How long does it take for Premium Bond winnings to be paid?

If you are one of the lucky winners, bear in mind that it can take up to three working days for your money to reach your account.

But if you haven’t received the money in your account after seven working days, call NS&I to make sure that they have the correct bank details for you.

If you want to receive a cheque in the post, it can take till the end of the month to arrive. But if you still haven’t received yours after a month, get in touch with NS&I and you will be sent a replacement.

How can I cash in my Premium Bonds?

There are several ways to cash in your Premium Bonds.

  • The easiest way is to use the online service. If you bought the bonds online then you’re already registered. Simply log in using the details you provided .
  • You can also cash them in over the phone by calling NS&I on 08085 007 007. Again because you had bought the phones over the phone you should be registered.
  • Either of these options should only take a few minutes. NS&I will cash in your oldest Bonds first and pay the money into your nominated current account.
  • You can also cash in your Bonds by filling out the Premium Bonds Cash In form.
  • Select how many bonds you want to cash in by ticking the relevant box in section three of the form. If you want to cash in a specific set of your Bond numbers, simply enter the start of the range of numbers in section four.If you tick ‘No’ in section four or leave it blank, NS&I will cash in your oldest bonds first.

How long does it take to cash in Premium Bonds?

According to NS&I, it generally takes up to eight working days for your Premium Bond money to reach your bank account.

However, it could take up to two weeks to process your payment if posting a withdrawal form.

You can cash in your bonds at any time.

How can I find lost Premium Bonds?

NS&I offers a tracing service for lost Premium Bonds – you simply fill in the request to trace dormant savings form.

If you have misplaced your Premium Bond holder’s number, you can phone NS&I on 08085 007 007. Or write and ask for a replacement bond record to be sent to you.

Give as much detail as you can about any:

  • Past addresses
  • Where and when you bought the Premium Bonds
  • How much they might be worth

Can you believe there are currently more than 1.7 million unclaimed prizes worth more than £64m? The good news is that the money is safe and waiting to be claimed. NS&I keeps it indefinitely, so even if it’s years later, you can still claim.

Can I have a Premium Bonds account if I live abroad?

If you live abroad but still hold aUK bank or building society account in your name then you can have a Premium Bonds account.

However, since Brexit banks have been writing to British expats warning them that their UK accounts will be closed.

This is due to the ending of “passporting” rules that made it easy and cheap for financial institutions to provide services across the EU.

NS&I has been contacting those affected to tell them that they are unable to continue to hold their Premium Bond accounts if they no longer have a UK bank account.

What happens to Premium Bonds if I die?

If you die, your Premium Bonds become part of your estate.

This means they could be liable for inheritance tax, which is payable at up to 40% above a certain threshold.

In terms of what happens to any winnings, the person managing your affairs can opt to leave the bonds in the prize draw for 12 months after the date of the death.

Once NS&I has been told about a customer’s death, any Premium Bonds and prizes won are paid by warrant to the person who is entitled to the money. A death claims form will need to be completed first.

You might also want to read our guide on inheritance tax.

Important information

Some of the products promoted are from our affiliate partners from whom we receive compensation. While we aim to feature some of the best products available, we cannot review every product on the market.

As an enthusiast with extensive knowledge in personal finance and investment, I find the topic of Premium Bonds and their recent developments intriguing. My background involves analyzing financial markets, investment instruments, and government-backed savings programs. Let me provide a detailed breakdown of the concepts used in the article:

  1. Government-backed NS&I (National Savings and Investment):

    • NS&I is a government-backed savings institution, ensuring the safety of deposited funds.
    • It was introduced to encourage savings in the post-World War II era.
  2. Premium Bonds and Prize Rate Changes:

    • Premium Bonds are a unique savings product introduced in the late 1950s, offering a chance to win tax-free cash prizes through a monthly draw.
    • The "prize rate" is the interest rate on Premium Bonds, which was increased from 4% to 4.65% in September but is set to decrease to 4.4% in March.
    • NS&I adjusts the prize rate based on various factors, and the recent decrease may be attributed to sufficient investment.
  3. Chances of Winning and Prize Fund:

    • Despite the rate changes, the chances of winning a prize with Premium Bonds remain at 21,000 to 1.
    • The big jackpot of £1 million is awarded to only two winners each month.
  4. NS&I's Decision to Cut Prize Rate:

    • NS&I's decision to cut the prize rate is explained by a secured investment position, indicating reduced need to attract new cash.
  5. Recent Winners and Prize Amounts:

    • August's winners from Hereford & Worcester and Essex each won £1 million in tax-free cash.
  6. Are Premium Bonds Worth It?

    • Premium Bonds could be worthwhile for those with a significant amount to save, individuals paying tax on savings interest, or those who enjoy the element of a prize draw.
    • The article explores whether Premium Bonds are a good fit based on individual financial circumstances.
  7. How to Buy Premium Bonds:

    • Premium Bonds can be purchased through the NS&I website or by phone, with investment amounts ranging from £25 to a maximum of £50,000.
  8. Checking Premium Bond Winnings:

    • NS&I provides online tools and apps for checking Premium Bond winnings, typically announced on the first working day of the month.
  9. Average Rate of Return and Gambling Aspect:

    • Premium Bonds don't have a fixed interest rate; instead, they have an average rate of return.
    • The article discusses the gambling aspect of Premium Bonds, emphasizing the element of luck.
  10. Advantages and Disadvantages of Premium Bonds:

    • Advantages include the protection of invested money, tax-free winnings, reinvestment options, and easy access.
    • Disadvantages include the gamble-like nature, uncertain returns, and the potential to earn more with traditional savings accounts.
  11. Odds of Winning and Prize Fund Rate:

    • The odds of winning are explained, with the more significant chance associated with higher bond investments.
    • The annual prize fund interest rate is used as a guide when comparing Premium Bonds to savings accounts.
  12. Comparison with Savings Accounts:

    • The article compares potential earnings from Premium Bonds with those from traditional savings accounts for different investment amounts.
  13. Buying Premium Bonds for Children:

    • Premium Bonds can be bought for children, with a nominated parent or guardian managing the bonds until the child turns 16.
  14. Payment and Cashing in Premium Bonds:

    • Premium Bond winnings can be paid directly into a bank account or as a warrant (cheque).
    • The timeframes for receiving payments and the options for cashing in Premium Bonds are explained.
  15. Tracing Lost Premium Bonds and Unclaimed Prizes:

    • NS&I offers a tracing service for lost Premium Bonds, with more than 1.7 million unclaimed prizes mentioned.
  16. Premium Bonds for Expats and Handling Upon Death:

    • Expats with a UK bank account can hold Premium Bonds, but changes due to Brexit are highlighted.
    • In the event of death, Premium Bonds become part of the estate, potentially subject to inheritance tax.

This comprehensive overview covers the key concepts related to Premium Bonds, providing readers with a thorough understanding of the topic.

Are NS&I Premium Bonds worth it? - Times Money Mentor (2024)
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