Are you thinking about buying premium bonds but not sure where to start? Have you ever wondered how much premium bonds cost? Read on for all the information you need.
What are premium bonds?
Premium bonds are a financial product issued by National Savings and Investments (NS&I), a UK government-owned savings bank.
If you buy premium bonds, you will not get any interest on your savings. Instead you will be given the opportunity to win cash prizes every month.
Each premium bond has a unique number that is entered into a monthly cash prize draw. The cash prizes range from £25 to £1 million and they are all tax free.
How much are premium bonds?
A single bond is worth £1, but you will need to make a minimum investment of £25. You will get a unique bond number for every £1 invested.
So, if you have invested £100, you will get 100 premium bonds, which are entered into the prize draw every month.
You can purchase more bonds if you want to, up to a maximum value of £50,000. You can also purchase bonds on behalf of children or grandchildren aged under 16.
How can I buy premium bonds?
If you want to buy premium bonds, you must be at least 16 years old. If you are under 16, an adult can buy premium bonds on your behalf.
You can buy bonds direct from the NS&I online, by phone or by post. If you have another NS&I account, you may be able to transfer funds. Further details on how to buy premium bonds are available on the NS&I website.
How does the prize draw work?
When you purchase your bonds, you will be issued with an account number. You can log into your account using your number and a password. You will also have the option to access your account using a smartphone app.
New premium bonds must be held for a full month before inclusion in the prize draw. So, if you purchase bonds in August, the first prize draw they will be included in will be in October.
The unique numbers are selected randomly by Electronic Random Number Indicator Equipment, or ERNIE for short. The prize draw takes place at the beginning of the month.
The exact dates do vary depending on public holidays and weekends, but prize draw results tend to be available around the 4th of each month.
So, what happens if and when I win?
Prizes are sent automatically to a designated account or can be automatically used to purchase more bonds. If you are lucky enough to win a prize worth more than £5,000, the NS&I may need to undertake some checks before payment. You will also need to complete a claim form.
What are the odds of winning?
When considering how much premium bonds are worth, it ultimately depends on your chances of winning cash prizes.
At the moment, the annual prize rate is currently 1.4%. This means that you will get £1.40 on average for every £100 worth of bonds. However, it’s important to note that this is what you will get on average. That means that some months you may win something while on others you will win nothing.
In addition, the prize distribution is set to change in December 2020. This will lower the annual prize rate to 1%.
What if I need the cash?
You can cash in some or all of your premium bonds online or over the phone. Alternatively, you can complete a cashing in form and send it by post.
The cash will be in your account within four days from the day the withdrawal instruction is received.
Premium bonds are a useful way to hold spare cash that you don’t need straight away, such as an emergency fund.
The chances of winning are set to fall in a few months. However, the amount you could win on average will still be more than the interest earned from some easy access savings accounts.
Also, NS&I is backed by the UK Treasury, so your money has 100% backing from the UK government.
Rated 5 stars out of 5 by MyWalletHero…
The FinecoBank* Multi-Currency Trading Account offers UK investors highly competitive share-dealing rates across 26 global markets.
Use promo code FINECO-MF today and enjoy up to 50 free trades over your first two months!
*Affiliate Partner. Important information and risk disclaimer: The value of shares and any income produced can fall as well as rise, and you may get back less than you invest. Exchange rate fluctuations can reduce the sterling value of any overseas holdings.
Some offers on MyWalletHero are from our partners — it’s how we make money and keep this site going. But does that impact our ratings? Nope. Our commitment is to you. If a product isn’t any good, our rating will reflect that, or we won’t list it at all. Also, while we aim to feature the best products available, we do not review every product on the market. Learn more here. The statements above are The Motley Fool’s alone and have not been provided or endorsed by bank advertisers. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Barclays, Hargreaves Lansdown, HSBC Holdings, Lloyds Banking Group, Mastercard, and Tesco.