Premium Bonds – are they worth saving in?

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Premium Bonds are offered by National Savings & Investments and promise a tax-free payout if you win. There’s no guarantee you will win but there’s no risk to the money you’ve saved in them.

Premium Bonds – are they worth saving in?

If you are looking for a risk-free home for your money, where any potential payout is tax free, and you like the idea of getting a prize, you could consider Premium Bonds. However, the big disadvantage is that there’s no guarantee you’ll get any prize, never mind a big prize. Some people love the idea of Premium Bonds but others prefer to know exactly how much interest they’ll get on their savings. The chances of a £1 Premium Bond winning a prize are 24,500 to 1.

  • If you win a prize, the payout is tax free. The smallest prize is £25 and the biggest is £1 million. There are two £1 million prizes every month.

SAVVY TIP: Because you may be able to win a prize, you aren’t paid interest on the amount you save in a Premium Bond. However, the ‘equivalent’ interest rate, for someone with average luck (whatever that is!) is 1.4% tax free.

  • Premium Bonds don’t run for a specific term, so you can cash them in at any time, without any penalty.
  • Your capital (the original amount you pay in) is secure as it is backed by the UK government.

How to buy Premium Bonds

You can buy Premium Bonds online, by post or by phone. You have to pay for them using your debit card. When you’re buying Premium Bonds (especially for the first time), NS&I may send you a form to sign and return or it may verify your identity electronically. You will be sent a confirmation with a transaction reference and your bondholder’s number. You’ll get a confirmation every time you buy or sell bonds.

SAVVY TIP: If you’re a new NS&I customer and you’ve never used the website or phone service before, you have to register first and get an NS&I number. Registering online takes a few minutes and is straightforward.  The number to ring if you want to buy Premium Bonds by phone is 08085 007 007.

  • The minimum amount you can pay in is £25 and the maximum is £50,000. The bonds cost £1 each and each bond has the same chance of winning a prize.
  • Your bonds are put into the draw the month after you’ve owned them for a full month. If you buy the bonds in September, they’ll be in the November prize draw.

SAVVY TIP: You can also buy £25 of Premium Bonds at a time if you set up a standing order. There’s information on how to buy Premium Bonds with a standing order on the National Savings’ website.

  • You have to be aged 16 or over to take out a Premium Bond, but parents and grandparents can take them out for their children or grandchildren. There’s more information about how you can buy a Premium Bond for a child or grandchild on NS&I’s website (it’s partway down the page I’ve linked to).

Claiming your Premium Bond prize

Don’t forget to claim your prize. It sounds obvious, but there’s currently millions of pounds in unclaimed Premium Bond prizes. Prizes are announced on the second working day of each month.

  • You will be informed that you’ve won a prize by letter or email. You won’t be told how much you’ve won. Instead, if you win a prize up to the value of £5,000, you get a rather cryptic email telling you there’s ‘good news’ about your Premium Bond. You’ll need to log in to find out how much you’ve won. That means you’ll need your Premium Bond holder’s number and your password.

SAVVY TIP: If you’ve won more than £5,000, NS&I will write to you first with a claim form to check how you’d like the prize money to be paid. If you’re lucky enough to win a million pounds or more, you’ll be visited by Agent Million in person. 🙂

  • You can find out if you’ve won a prize by checking the Premium Bond prize checker. There’s a free app which you can download to your iPhone or Android device.
  • You can get your prize money paid into your bank account or use your winnings to buy more Premium Bonds. The account has to be a UK one. You can find out more about how to get prizes paid direct into your bank account on the National Savings website.

SAVVY TIP: You can find out how to change your address details, so you can be informed if you’ve won a prize, on the NS&I website.

Taking money out of your Premium Bonds

Taking money out of your Premium Bonds is relatively straightforward, but the transfer will take a few days. You’ll need to log into your Premium Bond account and select how much money you’ve like to move to your nominated account. You’ll be asked to confirm that you’d like to make the transfer, and whether you’d like the money to be transferred straight away or after the next prize draw.

If you want your money transferred straight away, it will take at around three working days to reach your account.

Photo credit: NS&I

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Which bank accounts are protected by the Financial Services Compensation Scheme?

How does compound interest work? Understanding its benefits.

How to profit from tax free investments

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