Guide to Premium Bonds

Premium Bonds, which were launched in 1956 and are issued by National Savings & Investments (NS&I) offer a risk free way of saving your money. The amount you invest is guaranteed by HM Treasury so there’s no risk that you'll lose your money. However, instead of paying interest on your savings, you'll be entered into a monthly prize draw where your Bonds could win you anything between £25 and £1 million.

Every month, more than a million prize-winning numbers are chosen at random by a computer called Ernie (Electronic Random Number Indicator Equipment).

Until August 2005, one person each month bagged a £1 million. Now two bondholders each pocket the top prize.

Each month’s prize fund is equal to one month’s interest on the total value of all Bonds, which currently stands at 1.5% (June 2010), and a massive £34 million of winnings is yet to be claimed.

Investing your cash

The minimum investment is £100, but you can also buy £50-worth of bonds if you pay by monthly direct debt. The maximum that you can invest is £30,000 and you will receive a separate Bond number for each £1 invested. This means that the more Bonds you buy, the higher your chances of winning a cash prize.

What are the odds?

The chances of winning a cool million with any single £1 bond are 26 billion to one. But because the minimum £100 holding provides 100 chances, this cuts the odds to 260 million to one.

However, according to the NS&I, the chances of winning any prize, no matter how small, with a single £1 bond are 24,000 to one.

The National Lottery provides a good comparison of your winning chances, where you have a one in 14 million chance of winning with a £1 stake. But unlike the lottery, you do not lose your stake if you do not win on Premium Bonds. You simply go into the following month’s draw.

The only sure way to increase your chances of a prize is to buy more bonds. NS&I calculates that with the maximum £30,000 investment and “average luck” you should win 15 prizes a year.

Note that phrase “average luck” - there is no guarantee that you'll win anything.

Prizes are based on a rate of return, currently 1.5%. This means that as a “savings vehicle”, Premium Bonds are not the most competitive. The best-paying savings accounts tend to offer far better gross rates of interest.

Are Premium Bonds worth it?

One major selling point for Premium Bonds was the fact that your investment was backed up by HM Treasury, making them 100% secure. However, the government now guarantees your first £50,000 of savings - no matter which bank you're with.

Another draw for people buying Bonds is the fact that you stand a chance of winning enough money to change your life forever, and this “lottery effect” is a big attraction - no matter how small the odds.

But if you want a steady, reliable return on your cash, you would be better off investing your money in a high interest saving account or cash ISA, which might offer a return of 3% or more.

While the “interest rate” on Bonds might currently be 1.5%, you can only either win at least £25 or nothing. And unfortunately, the chances are that you'll usually win nothing in the monthly draws.

Buying Premium Bonds

You can buy Premium Bonds using a debit card, calling NS&I on 0500 007 007, or by completing an application form available at any Post Office branch. You can also download a form from the NS&I website, or you can request a form from by calling 0845 964 5000.

Anyone aged 16 or over can buy Bonds and you can also invest on behalf of your children or grandchildren. However, Bonds cannot be held jointly and are not transferrable to another person. This means that Bonds will have to be cashed in if the owner dies.

Claiming your winnings

Although NS&I will write to you if you win - or even visit you personally if you’ve won the top £100,000 prize - millions of pounds are yet to be claimed. There’s no time limit on claiming your winnings and you can check whether or not you’ve won at the NS&I website.

You can cash in all or part of your Bonds at any time, though NS&I will need around eight day’s notice.