Premium Bonds: The Easy Guide to Britain's Favorite Savings Product
Looking for a different way to save money? Premium Bonds might be just what you need. These special savings bonds don't pay regular interest but instead give you a chance to win tax-free cash prizes each month.
What Are Premium Bonds?
Premium Bonds are a savings product issued by NS&I (National Savings and Investments), which is backed by the UK Government. Instead of earning interest like a normal savings account, your money goes into a monthly prize draw.
Each £1 bond has an equal chance to win prizes from £25 to £1 million. When you buy Premium Bonds, each pound gives you one entry into the monthly prize draw. The more bonds you have, the more chances you have to win.
The best part about Premium Bonds is that your original money is always safe. You're not gambling your savings away – you're just giving up guaranteed interest for the chance to win bigger prizes.
How Premium Bonds Work
Every month, a computer called ERNIE randomly picks the winning bond numbers. This is completely random, so every bond has the same chance of winning – whether it's brand new or decades old.
There are different prize levels, from £25 prizes that thousands win each month, to medium-sized prizes of £100, £500, £1,000, and all the way up to the two £1 million jackpots. All prizes are tax-free!
Who Can Buy Premium Bonds?
If you're 16 or older and live in the UK, you can buy Premium Bonds directly. You need to put in at least £25 to start, and you can hold up to £50,000 in total.
Parents, grandparents, and great-grandparents can buy Premium Bonds for children under 16. This makes them a popular gift for birthdays or special occasions.
Pros and Cons
Pros:
- 100% safe savings backed by the UK Government
- Tax-free prizes up to £1 million
- The excitement of possibly winning big
- Easy to cash in when you need your money
Cons:
- No guaranteed returns like regular savings accounts
- Many people never win anything
- Inflation can reduce the value of your money over time
Are Premium Bonds Right For You?
Premium Bonds work best as part of a balanced approach to saving. It's smart to have some money in regular savings accounts first for emergencies, then consider Premium Bonds with money you can afford to earn no interest on.
Because the prizes are tax-free, Premium Bonds can be especially good for people who pay higher-rate tax and have already used up their tax-free ISA allowances for the year.
While they won't be right for everyone, millions of Brits enjoy holding Premium Bonds as part of their savings mix. The combination of safety and excitement keeps people coming back, even if the actual chances of winning big prizes are quite small.
