“ Are Premium Bonds a serious investment or just for fun? Give us your views. „
Premium Bonds were introduced by British Prime Minister Harold Macmillan in 1956 as a way of encouraging people to save money after the austerity of the second world war. They proved incredibly successful and today almost a half of us holds some Premium Bonds.
The attraction is very easy to understand. Anyone over sixteen years of age can buy bonds from the government website (http://www.nsandi.com/savings-premium-bonds) and these are entered into a monthly lottery with a top prize of a million pounds. Many other cash prizes are available each month, down to as little as £25, and all winnings are tax free. One of the other advantages is that you can withdraw your original stake at any time, so there is no chance of you actually losing any money.
You can hold any amount between £100 and £30,000 of bonds and every bond gets an equal chance of winning in the monthly draw. Of course, the more that you hold, the greater your chance of winning. Think of every pound that you hold in bonds as buying one ticket to the monthly draw. The more tickets you have, the better your chances of winning something, maybe even becoming a millionaire.
But is it worth it?
Only you can answer that question but the bare figures are these:
The government works out how much is held in bonds every month. It then pays 1.3% interest on that money into a prize pot. It allocates £1,000,000 of this to the first prize and then divides the rest up in various smaller cash prize.
The odds of an individual bond winning the smallest cash prize (£25) are 26,000 to one. Already you can see that the odds are very much against you. The chance of winning the top prize in any given month is a staggering 46 billion to one.
The conclusion should be obvious: you are much better putting your money into a cash ISA.
If you've maxed out your ISA holding for the year and still have a hefty chunk of cash left, then why not? It's no secret that most of the big winners are those who hold close to their maximum bond allowance. This stands to reason as if you have 30,000 tickets in the draw then your odds of winning are far greater than someone who only has 100 tickets.
As for me, all I can say is that I have been lucky. I got made redundant a few years ago and got a large payoff. Seeing as savings interest rates were only at around 1.5% I decided that Premium Bonds would be worth a go and have currently made about a 5% annual earning on my cash. That is way above the average person's winnings, but I'm not complaining. I haven't had any big wins, just a little trickle of £25 and £50 cheques. They'll do
Honestly, if you only have a few hundred quid to spare then it's probably not worth it.
But then again, you'll never win the raffle if you don't buy a ticket.
I HAVE BONDS TO THE VALUE OF TWOTHOUSAND SIXHUNDRED POUNDS STARTING FROM 50 POUNDS TO A THOUSAND POUNDS I HAVE CHECKED BACK TO JANUARY THIS YEAR AND ANYONE WHO HAS PREMIUM BONDS STARTING WITH ZERO WILL NOT HAVE WON A PRIZE FROM ONE THOUSAND UPWOULDS NOT ONE PRIZE SO IF YOU HAVE BONDS BEGINNING WITH ZERO YOU WONT WIN A BIG PRIZE
Premium Bonds are touch and go. For some they work and for others they don't. My father started investing in the 70s and at one point he held over £15000 worth of bonds. The most he won was the occasional £50 which some years equalled the interest he would have gained from the bank anyway but most often it wouldn't.
I started buying bonds in the 90s thinking I must have better luck than my father. At one point I had £8000 invested but the most I won was £100. Over all I increased my lot by £400. I then realised my money would be best placed in an ISA. I wish I had invested in ISAs to begin with as I would have had more money by now.
I don't believe their odds which they claim to be 1 in 5 or somthing. Also, their website and service leaves much to be desired in this day and age. While most banks and services allow you online checking of your account, NS&I seem to like living in the middle ages, relatively speaking.
premium bonds were set up a few decades ago. The idea was that instead of being paid interest on the money instead you would have the chance to win prizes of money each month. Within a few years they became very popular and even today millions of people have invested in premium bonds. You can buy anything from £100 to £30,000. The more you have the more likely you are to win because each pound invested gives you a new chance in the monthly draws. There are over a million prizes each month from £25 to £1,000,000.
I love premium bonds i think they are great. A year ago i put one thousand pounds into Premium bonds and to date i have won one hundred and seventy five pounds. If i had put the same amount in a bank account i would have only made about £20 so for me premium bonds really are the write way to go. My prices are equal to over 15% interest a year. No bank pays that. Therefore i think that they are great investments and well worth the money if you have some spare cash in your pocket and don not know what to do with it.
My advice to anyone intending to invest in Premium Bonds is that they move to Redbridge or Hillingdon. Since retiring 14 years ago I have been checking the monthly winners regularly and am astounded by the number of times holders in these two areas win four and five figure prizes
If anyone believes that these numbers are chosen at random, just take a look at this months' winners, then go back over the past few years. There cannot be a luckier place in Britain to buy bonds than those mentioned above. I hold a substantial amount of premium bonds myself and win the odd small pirize, the maximum being £100, and always pay my check into the local Building Society, whose staff confirm that to the best of their recollection, have never hadled prize cheques of £1000 or more. Perhaps if I persevere for anothe 14 years I may hit the jackpot
Premium bonds are a thing many people hold - it used to be quite common for Grandparents to buy them for their grandchildren when they were first born etc., I have a few friends who hold £2 in premium bonds, have held them for 30 years and have won zero in all that time. I had a small amount of premium bonds and won a few £50's over the years then decided to return the little pink form and get my money back (you can do this at any time and they will send you a cheque).
The idea is you buy them (now the minumum you can buy is £100 and the maximum £30,000). Anyone over 16 can buy them, but they can be bought for the under-16's by a parent or grandparent. They do not pay any interest-over the years you may win a prize instead of accruing steady interest on your investment. The monthly jackpot is £1 million and there are around the same amount in smaller cash prizes every month which are paid out tax free.
They are a different savings product, something a little quirky, and a bit of a gamble as your £100 today is still going to be only worth £100 in 100 years whereas it could have grown to something larger in a bank account (well, maybe, current interest rates excluded). I'd say now the interest rates on savings are so low, they are a good investment product as it isn't very likely your £100 now would make any interest either if it was in an ordinary bank account- and you could win a million....
Premium Bonds are the best form of gambling- the only type that I know of where you can get your stake back win or lose. Admittedly if you leave the bonds invested for any length of time the value you get back will have been eroded by inflation- but that is still more than you get back if you lose on the lotto, horses, bingo etc.
When I was about 10 my father won, what was then the top prize of £1000- that was enough to go on a lovely holiday to Switzerland, buy a new carpet and reinvest £500 into bonds- not like winning the top prize of a million today- but very very welcome- I think it was the first "proper" holiday we had ever been on.
So I admit I was always biased towards ERNIE ( electronic random number indicator equipment), as he was, and continued to remain a friend of my parents albeit only with the odd £50 or on really good months £100.
I have premium bonds, I have had them since I was a small child, as my parents used to buy them for me from any present money I was given, (back in the day you could buy from £1). I have also added to my holding periodically. I buy them because I find it to be a good way of saving, not least at the moment when interest rates are so very very low- it's the last saving I want to cash in- as in- my numbers would come up as soon as I did school of thought.
Like any investment it takes a while to buy the first batch- a minimum of £100- understandably they have to ensure you are not money laundering- but once you have a bond holders' number it takes a couple of minutes to buy more online or over the phone. You can also buy by post or (by queuing) at the post office.
It takes a month to get your bonds into the draw but after that you can live in hope every month that you will be receipt of a lovely small or large cheque. The cheque arrives about mid month- but I cannot resist checking on line a couple of days into the month-to see if one is coming.
I have just done that for this month and I haven't won- but as I said- my money hasn't gone- so here's hoping I have better luck next month.
When I wanted to buy my own bonds- I saved every month- only £2.50 so it took me 40 months to buy £100. Then I started saving 20p pieces and I was able to get another £100 about once every two years. So you will see I was hardly laying out mega money to be in with a chance of the odd bonus!
Recently they have reduced the lower prize to £25 and I think this is a good thing- in fact everyone I know would rather have lots more smaller prizes and less large ones- they think this on the lotto too.
The funny thing is I never dream of winning the million on bonds - I just think I might win a bit to enable life to be a little more fun.
So, if you do get some - Good Luck
Premium bonds are not at all user friendly, it takes a month for your money to be invested and there is a long form to fill in both when buying and selling and it is necessary to send paper forms despite all the account details and details of coupons (if any) being available online.
Access to the online service is poor with much longer codes needed than with banks plus you can't select your own entire log in info as they want your holder's number.
The yield is currently 1.8%, this is historically low in absolute terms but relative to RPI inflation of 0.1% and the low returns available on cash else where this is probably the best time to own them thus far.
But even at this great time premium bonds still have very significant draw backs; they are extremely volatile in terms of growth with many achieving 0%.
Note the 1.8 figure is a mean average and is positively skewed by a few large payments so the modal return is far lower.
Investing here carries the opportunity cost of not being in the market at these attractive levels which seems ludicrous; Edinburgh investment trust yields 6.4%, trades at a discount of 4.4% and is invested in the largest companies in the UK.
PBs are also relatively illiquid; you have to wait for forms to go though the post and a cheque to clear where as with faster payments some savings accounts can be accessed in minutes.
Inflation is often quoted as a risk but rises tend to be slow and predictable. I expect you will have ample warning when the economy is going to improve enough for this to be an issue.
One potential use for PBs is as a safe heaven for the retired wealthy; if you don't need to get a return because you can live of your capital and you want all your money in one place for convenience then PBs have the advantage of being backed 100% by the treasury. However even in this scenario access would be an issue and gilt bonds are available for a yield of 4.26% with regular, uniform coupons.
It seems counterintuitive to me that someone choosing a low risk low return investment would opt for the variable cash flow of PBs, especially when this inconvenience isn't priced in.
Overall PBs are an awkward, overpriced and unpredictable investment which is best avoided.
Premium bonds are a way of investing your money which most of the population hasn't realised how good they actually are.
A premium bond is an investment with the post office where basically you exchange real money for bonds, these bonds are given numbers and are entered into a prize draw every month, with there being two £1 million prizes every month, with over £1 million of seperate prizes at various amounts. The regular amount is around £50.
The best thing about premium bonds is that they are tax free, soo no matter how much you win, it is all yours and none of it can be taxed off you. The conditions for this are:
The minimum investment is £100 and
the maximum investment is £30 000.
Only over 16s can invest themselves, but under 16s can invest with parents or grandparents buying on behalf of the child.
and prizes must be claimed within 3 months otherwise you cannot claim it.
THE BENEFITS OF PREMIUM BONDS
Although there isn't a garuntee of income from the Bonds, the chances are high of you recieving around £50 every few months. I actually went into the bank, and discussed with the advisor there whether I would be better off with a cash ISA with Barclays, but if i recieve £50 from my bonds every 3 months I will actually be better off than earning the interest from an ISA.
I have had premium bonds for about a year now, and soo far I have earned quite alot in prizes, I can't remember how much. However I forgot to claim my prize from 4 months ago, so i think i lost that one dam it.
I do think that premium bonds are a good thing which more people should get involved in, you cant win the million unless you invest. There is something about it when you check on the internet at the end of the month to see if you win that is really exiting. There is no tax on the money, so if you quickly squirrell your money away before the tax man notices your away. There is one major flaw in them at the moment though, which is your investment might be lost if the country goes how germany did, if we introduce quantative easing.
Bit of advice, if you hear Britain going into hyper inflation get your money out as quickly as you can ;)
I've had premium bonds most of my life (my first were bought by proud grandparents for my christening) and I get a regular (though not guaranteed) flow of small prizes (mainly £50 or £100).
I have any prizes won automatically reinvested and cash them in when that rainy day (or holiday) calls for more funds.
Sometimes I have a couple of months with nothing then I'll have three £100 winners on the same month. It all adds up, and my current winnings for this year are £1050. I currently hold about £15,000 worth. My mum's got the same amount and hasn't been quite as lucky as me so far this year and her winnings are at £750.
I know I could put the money in a savings account and get interest instead of prizes, but then I'd never get the chance of winning a million would I? At worst, yes it's a gamble but at least I know I can get my money back plus winnings anytime I like.
Whilst they work for me, I feel I must mention though, not everyone is as lucky and you quite often hear of people who've never won anything on them. I can quite understand how people get disillusioned having held them for years and never won a penny.
About Premium Bonds
Premium Savings Bonds Series B ("Bonds") are a UK Government security issued in units of £1 under the National Loans Act 1968. They do not earn interest, but are included in draws for cash prizes. These prizes are free of all UK Income Tax and Capital Gains Tax.
Premium Bonds are an investment where, instead of interest payments, investors have the chance to win tax-free prizes. When someone invests in Premium Bonds they are allocated a holder's number and a series of numbers, one for each £1 invested. The minimum purchase is £100 (or £50 when you buy by monthly standing order), which provides 100 Bond numbers and, therefore, 100 chances of winning a prize. You can hold up to £30,000.
Your capital is 100% secure. National Savings and Investments is backed by HM Treasury.
There is a prize fund for each month which is equal to one month's interest on each Bond unit eligible for the prize draw for that month.
That chance every month to win £1 million (and you can get your money back!)
Any winnings are Tax free
Not suitable for you if;
You don't have a minimum of £100 to invest.
You want a regular income from your savings, are looking for guaranteed returns or are concerned about the effects of inflation on the value of your investment.
History behind them
In his Budget of 17 April 1956, Harold Macmillan announced that Premium Bonds were to be launched to reduce inflation and to encourage thrift among those who were attracted not by earning interest but by winning prizes.
The first was bought on 1 November 1956 by Alderman Sir Cuthbert Ackroyd, who later became Lord Mayor of London.
A prize draw number generator, ERNIE which stands for Electronic Random Number Indicator Equipment, was designed to produce numbers which would win prizes.
ERNIE made his public debut in 1957, when 'he' was the size of a van. He has since been replaced by increasingly smaller, more efficient versions. We are now on ERNIE 4.
Who can buy them
Anyone aged 16 or over. They can also be bought on behalf of under-16s by parents and grand-parents.
How they work
Instead of paying interest, Bonds are entered into monthly prize draws.
Higher value prizes equal 5% of the prize fund
Medium value prizes equal 5% of the prize fund
Lower value prizes equal 90% of the prize fund
The number of prizes in each draw is determined by dividing the total number of eligible £1 Bond units by a number specified by the Treasury. This specified number determines the odds of each £1 Bond unit winning a prize in the monthly draw.
Current odds 24,000 to 1
The minimum purchase is £100 (one hundred £1 units) or, where the purchase is made under the Regular Purchase Scheme or under an automatic prize reinvestment mandate, £50 (fifty £1 units).
You can buy them;
By post - forms are available online throught the nsandi website or picked up from your post office
By phone - freephone 0500 007 007
Online - through the nsandi website
By Standing Order - Once you've already bought premium bonds you may buy more on a monthly basis but the minimum for each purchase will be £50 instead of the normal minimum of £100. Sums above £50 must be a multiple of £10. Payment for the Bonds must be by standing order from a bank or building society account in your name.
Your Bonds become eligible to take part in the prize draws once you have held them for a full calendar month following the month you bought them. They then go into every draw until you decide to cash them in, giving you the chance every month to win tax-free prizes.
If you win
You can check the nsandi website after the third working day of every month to see if you've won. You just enter your Premium Bond holder's number and any prizes from the current (and six previous months) will be displayed.
If you're a winner you will be sent your winnings, unless you win one of the £1 million jackpots when a representative will supposedly visit you personally with the good news (Sadly I'm not able to confirm that as being true but I live in hope!).
Once you've won you'll get the option to have any future wins automatically reinvested and if you choose this option you'll be sent the new bonds certificate instead of the money.
Cashing them in
You can cash in your bonds or part of your Bonds anytime. Forms are available from the nsandi website or the post office.
If you only cash in part of your bonds a new Bond certificate will be sent to you for the balance.
The money can be paid directly into your bank or building society account or you can ask for a warrant (like a cheque). This payment is made within eight working days of receiving your form, You can also ask to have payment made after the next draw.
In summary; I like the excitement of checking every month to see if I've won anything so I'm not planning on cashing mine in anytime soon!
EXTRA SPECIAL GOOD LUCK to anyone who buys them as result of reading my review and hope you win. Sorry to anyone who doesn't - but on the bright side, you can get your money back.
UPDATE - JULY '09 (Taking the rough with the smooth!)
Due to the prize fund being dependant on interest rates as you can imagine
the amount paid out has decreased significantly over the last few months.
Earlier this year NS&I introduced a new prize amount of £25 therefore
increasing not the amount of the prize fund but the number of prizes paid
out. The odds are currently 36,000:1 which is significantly lower that it was
when I wrote this review.
In line with that, my winnings to date this year have been very poor in
comparison with previous years.
Way the cookie crumbles I guess!
Although I'm not a very lucky person when it comes to these things I thought I'd write about it and let those of you out there that are unaware of what these are give you a little insight into them and my opinion on the matter.
Premium bonds are another form of tax free investment that anyone aged 16 or above can invest in with a chance of scooping one of two million pound prizes as well as numerous others every month. Currently an investor can purchase anything from a £100 block to the maximum holding of £30,000. I must make everyone aware now that anyone lucky enough to have the maximum holding is almost certainly going to receive at least one prize every month. The prizes are as follows and are normally drawn within the first day or two of the month by ERNIE (Electronic Random Number Indicator Equipment)...
All prizes are tax free and can be banked or re-invested depending on personal choice.
Currently they offer a standing order service which allows investors to regularly purchase these bonds at a lower cost of fifty pounds although you do have the choice to invest more if you wish.
On purchasing these bonds which can be achieved via online or post office correspondence you will be sent a certificate detailing you bonds, your bond numbers and your very own individual holders number. Any future bonds will then be assigned to your number and you will receive yet another certificate which will need storing somewhere safe in case you wish to cash them in at a later date.
At the beginning of each month you can check if you're a winner by consulting the National Savings and Investments website where all you need to do is type in your holders number in the space provided and hit the enter key. Within a few seconds you will either be jumping with joy or wishing the following months draw would hurry up and come round.
I have held premium bonds for the majority of my life yet all I have to show for it is a fifty pound win when I was about five and what I had originally paid in. That's my only problem with this form of investing. I know the only reason I have not won more is because I have not invested enough to win I'm not even close to quarter of the maximum holding. Therefore my money is held in these bonds earning no interest just sitting there never getting drawn while a lucky section of the population who have invested more are reaping the rewards. Occasionally a bond holder with very little in holdings bucks the trend and nets a few thousand.
In conclusion this is definitely worth thinking about as an investment opportunity as it does give the majority of society a chance to bag some money. I could even go as far as to say your more likely to win more on this than on the lottery! It pays to have as much as you can comfortably afford in premium bonds but many of us don't have that kind of loot just lying around. According to money expert Martin Lewis the ideal amount to invest is about two grand so when I eventually get to that milestone I'm taking his advice and stopping. With this amount invested you should expect to see returns at least once or twice year. A graph of possible probabilities can also be found on Martin Lewis' moneyexpert.com website.
I like premium bonds. I've had them for years, but I have become more disenchanted with them recently because the rate of return doesn't seem as good as in the past. A large proportion of the UK population have at least a few National Savings Premium Bonds, often held for a very long time, but are they actually any good? Are they gambling or a real investment?
What Are Premium Bonds?
Premium Bonds are effectively a loan to the government, in exchange, all returns from them are tax-free. They are issued by NS&I (National Savings and Investment, formerly the Post Office Savings Bank) and Each bond is worth £1 and pays no interest (unlike most "bonds") but each month the owner of the bond is entered into a prize draw. The prizes range from £50 to £1 Million with odds of each bond winning a prize, of 22,000 to 1 at the moment, although this changes according to the current interest rates. Currently this equates to a tax-free return of 3.4%
The winning bonds are "chosen" by ERNIE (Electronic Random Number Indicator Equipment) a random number generating computer, and assuming ERNIE really is random, each bond is equally likely to win a prize.
Most of the prizes are £50, with an approximately one in ten chance of winning £100 and all other prizes (£500, £1000, £5000, £10,000, £25,000, £50,000, £100,000 and £1,000,000) far less likely. The numbers and ratios for each prize is given on the ns&i web-site:
Minimum purchase is £100 (or 100 bonds in the form of a single certificate with a range of 100 numbers on it), although if you have your winnings reinvested, rather than receiving the prize as a cheque (or warrant) you may receive a £50 bond. Any size purchase may be made from £100 to £30,000 in multiples of £10. Forms can be obtained from a post office (if you can find one) or printed from the web-site.
After buying the premium bonds the investment can last for a lifetime, or you can take your money out at any time. It takes more than a month for your bond to be entered into the draw, but you can get your money out very quickly, with payment straight into your bank account in just a few days, or immediately after the next draw, if you prefer.
Are they any good?
The value of the bond does not increase with time. It remains worth £1, so in times of high inflation they will erode in value. The 3.4% however free of capital gains and income tax, so if you pay higher-rate tax this equates to nearly 5.7% before tax, but just 4.25% for a basic rate tax-payer and of course just 3.4% for non-tax payers, which really isn't very good. The best rate of return from high-interest rate savings accounts at the moment is over 7%.
There is of course that possibility of winning lots of dosh, without any chance of losing your money, unlike lotteries or the stock-market. NS&I is fully backed by the government so your investment is safer than in a bank account, but given that all U.K. bank accounts are now fully backed by a government scheme up to £35,000 this doesn't really gain you anything, unless you hold other NS&I products such as Savings Certificates etc. It takes over a month for your money to be invested and earning "interest", so it is best only to buy for the long term otherwise the effective interest rate will be even worse.
Is it gambling or investment?
Arguably it is both. Your initial stake is secure and safe, but you are effectively gambling just the interest that you would have received elsewhere on a kind of lottery.
NS&I have not kept the rates competitive with the best accounts on the market, so it is difficult to justify buying them, except maybe for higher-rate tax-payers (and even then you could do better elsewhere). I win a prize most months, and I have even won up to £500 some months, but they still do not represent as good a return as many cash investments at the moment. Every month in which I don't get a prize, I vow to sell some or all of my premium bonds, but some how I am just too attached to them, then I win £50 the next month and I'm so happy that I decide never to sell them. The thrill of opening that familiar envelope to see what I've won is almost worth the low-level of interest. It is also possible to check if you have won on the web-site on the third working-day of the month.
£30,000 should result in an average (mean) return of £85 per month or 20 prizes a year. You would need £1,500 in bonds to, on average, win once a year.
National Saving Premium Bonds are not a great investment, but they
are surprisingly fun. I would not recommend having too many of them at the moment, but having enough for a few prizes a year and that small chance of lots of money, could be worth doing instead of the lottery.
The NS&I website is:
Everyone should have some - National Savings Premium Bonds I mean!
Each premium bond is valued at £1, the minimum quantity that you can buy is £100.
There is a maximum value that people can hold, this is currently 30000 £1.00 bonds.
Premium bonds don't pay interest, instead each month, the government pays out a small percentage of all the bonds held. This is split up into small, medium and high value prizes. Your most likely to win £50, £100 etc. I have. But you have the chance to win thousands of pounds and even a million.
It could be seen as a decent alternative to the national lottery.
Current adverts show that in June, to mark a special date, ernie (electronic random number .... etc...) the machine that picks the winning bonds will select 5 millionaires!
The chances of winning this are very slim, but at least you get to keep your stake.
For further information take a look at the Tesco finance website or the national savings website. Also you can buy them from the post office. You can buy them online.
All bonds must wait one full month before they are put into the next months draw. So investing £100 at the end of April will mean your first monthly draw which your bonds are entered will be June.
You can take the bonds out at any time.
If your lucky enough to win, they will send you a cheque through the post. You can cash it, or reinvest it in more premium bonds.
Premium Bonds are offerred by the Government through National Savings and are a way of investing money with no guaranteed rate of return other than the fact that you are guarnteed to get your money back whenever you cash them in. The potential return from them is based on the fact that each month the bonds that you have purchased are entered into a prize draw. The top prize is £1million pounds and there are two prizes at this level which would be very nice however there are various prize levels right down to £50.
You are able to invest in premium bonds for as long or as little as you like and the minimum investmet is £100 whilst the maximum investment is £30,000, and must be held in single names . One of the great features of bonds that can make them attractive is that all winnings are tax free therefore for a higher rate tax payer there is a potential benefit. For the month of March they expect to pay out a total of £102.1 million pounds split amongst just over £1.4 million winning bond numbers, it is estimated that if you hold the full £30k for a year based on a spread of winnings (mostly small £50 ones) you would see a return of about 3.6% which is not as good as the highest interest paying accounts but there is always the potential of a big win.
You can purchase bonds via the National Savings website or by post with application forms available at your post office.
As an investment although they provide a guaranteed return of capital making them safe they also rely on a random draw to ensure any return on your investment so there is a risk and naturally if you win nothing then inflation will have reduced the value of your investment once you cash it in.
There are two times in a mans life when he should not speculate: when he cant afford it, and when he can Mark Twain.
Premium Bonds are a curious affair; part investment and part gamble, they are an almost-lottery run through National Savings and Investments, and backed by the government itself. I had until recently paid scant attention to them, until a chance conversation with my mother revealed that I had in fact owned a set of Premium Bonds since my 1st birthday, when my parents decided that some money given as a gift by my grandparents would be better placed into the bonds than into the savings account that they had opened for me. Having suddenly discovered this new dimension to my investment portfolio, I headed off to find out more about them.
The Premium Bond scheme was started back in 1956, it turned out, when the government tried to encourage more people to save money for the future by operating what amounts to a risk-free lottery. When they were first offered, this system actually caused quite a bit of controversy, and they were even opposed by the Churchs Committee, who rejected them because of the element of gambling involved. Most of you will be used to using savings accounts where interest is paid on the money you place into the account, usually annually, and you get whatever is left of the interest after the taxman has pocketed his share (unless you are lucky enough to be a registered non-taxpayer). However, Premium Bonds are a very different type of savings scheme, as they dont pay you interest. Instead, every £1 you invest in the scheme gets you a unique bond number that is entered each month into a prize draw where there are around a million prizes to be won, ranging in value from the top two prizes of £1 million to the smallest prizes of £50, all of which are awarded tax free. The numbers are drawn by the famous ERNIE (electronic random number indicator equipment), which randomly selects numbers to be compared to bonds. The sum given away each month is equivalent to the total interest that would otherwise be paid to all bond holders, and therefore varies according to the amount invested in bonds. The scheme is open to everyone aged over 16, although parents can buy Premium Bonds in the name of their children if they are younger, as happened in my case. When my parents bought the bonds for me back in 1979 the minimum investment was just £1, and the money they invested for me was (they tell me) a considerable investment into the scheme for the time, giving me multiple chances to win each month. Over time the irresistible force that is inflation has seen the minimum investment rise to where it currently stands at £100 (or £50 per month by standing order if you join the regular savers programme).
A million prizes a month sounds a lot, doesnt it? Well, I thought so too until I read on and found out that there are currently 23 million bond holders owning £26 billion worth of bonds. Each bond has an equal chance of winning a prize, although the odds vary over time as the amount invested and the equivalent interest rate fluctuate. The way such figures are calculated is a shadowy procedure carried out by the Treasury, and according the National Savings and Investments website, your current odds of any one bond winning a prize are 24,000 to 1 (the odds were 11,000 to 1 back in 1993). By way of comparison, the odds of any £1 ticket winning a prize in the UK Lotto are 54 to 1, and the odds of any £1 ticket winning the jackpot in the same game are 14 million to 1. Mind you, there were only £4 billion invested in the bonds in the early 1990s the explosive growth in bond ownership has seen the remaining £22 billion added over the past decade or so, thanks largely to the introduction of the £1 million jackpot, but also because they are increasingly seen as a safe alternative to diminishing savings account returns due to falling interest rates.
The big difference between Premium Bonds and games like the Lotto, though, is that with Premium Bonds your capital is safe; if you dont win one month, your bond numbers are kept and entered into every subsequent draw for as long as you own the bonds. This is why the scheme appeals to many people it seems to offer a safe way of gambling, as you cant actually lose your stake. Obviously, the more money you invest in Premium Bonds, the greater your chance of winning one of the prizes, although there is a maximum investment limit of £30,000 per person. According to financial writer Jasmine Birtles in her book A Bit on the Side, the odds of winning the £1 million jackpot if you have the maximum amount invested is 770,000 to 1, but you could expect an average of 12 prizes a year from this investment. She calculates this to be equivalent to a tax-free return of 2.15%, although the National Savings and Investments website cites the equivalent interest rate as 3.15% and independent financial advice website Motley Fool works it out at 3%.
Should you be the lucky winner of one of these prizes, you will be notified by letter, or by representative if you beat the odds to win the jackpot. However, we all know how erratic the post is, and that coupled with the fact that people do irrational things like move house means that there are millions of pounds worth of unclaimed prizes from Premium Bonds, dating back over the years (500,000 prizes totalling £30 million according to the BBC). There is no deadline for a prize to be claimed, so if you have won a prize it will be kept waiting for you however long it takes you to claim it. The National Savings and Investment website (www.nsandi.com) has a handy checker on it for your bond numbers if you suspect you may be due one of those prizes, and I duly typed in mine once my parents had relinquished the bonds to me to see if there were any unknown prizes lurking out there. Needless to say, I had won nothing. In the 27 years that I have held Premium Bonds (or 326 monthly draws up to the time of writing), I have not had a single penny back on the investment. Mind you, that is nothing compared to the remarkable record that my parents have amassed between them they have both held Premium Bonds for at least 40 years and neither of them has ever won, either. My mother jokes that we are storing up our luck to win the jackpot one month, but I am starting to wonder if Karma is trying to tell us something. If average luck dictates that you should get about a 3% return on your money per year, then after 27 years I should have expected (if my maths serves me correctly) to have nearly doubled the original investment bought for me on my 1st birthday by now. If the money had been put into my savings account I would have got a dull but reliable annual return on the money over time none of the excitement of having a letter from ERNIE certainly, but I would definitely have had a growth in my money and it would have been a higher return than the 3% offered by Premium Bonds to boot.
Premium Bonds are undoubtedly popular and are probably fun if you ever manage to win something. They also claim to be the only investment option that is 100% safe as they are backed by the Treasury itself, so it is secure and reliable. If you like a gamble, then they are certainly a tempting opportunity and many people may find the idea of winning prizes to be more appealing than the thought of getting interest, especially as there is no payment to the taxman with a prize. I can see all these advantages, but it seems my family just dont have average luck and with both interest rates and the stock markets rising, I think my Premium Bond capital might just be better invested elsewhere. I just cant see a future for me and ERNIE, Im afraid.
For more information or to buy Premium Bonds, visit: www.nsandi.com