PREMIUM BONDS - ARE THEY WORTH IT?
Essential information for beginners

What are premium bonds?

Premium bonds are a form of savings whereby the investor can buy bonds. These bonds do not pay interest but instead offer the chance of winning a range of cash prizes every month in a lottery type draw. With premium bonds the initial investment is always guaranteed – in other words they can always be cashed in and the investor will receive back the initial investment. Premium Bonds are therefore a risk free investment.

Introduced in 1956, Premium Bonds were the governments attempt to encourage ordinary wage earners to save. At the time of writing, it is estimated that over 23 million people in the United Kingdom.

What is Ernie?

Ernie is the computer that randomly selects the Premium Bond winners every month. Ernie stands for Electronic Random Number Indicator Equipment. Each month, around 600,000 prizes are given away, including a £1 million jackpot - introduced in 1994. Other prizes range from £50 to £100,000.

Where can I buy Premium Bonds?

Premium Bonds can be bought from the Post Office or from the National Savings & Investments (NS&I).  The bonds are worth £1 each and the minimum investment is £100 and the maximum investment is £30,000. You have to be over 16 years to buy Premium Bonds but they can be bought for children under 16 by their parents, grandparents, or guardians.

What are the chances of winning on the Premium Bonds?

The odds of winning on the Premium Bonds are not as good as they used to be. Odds for winning any amount on the Premium Bonds since 1993 are as follows:

1993: 11,000-1
1997: 23,066-1
2002 - Feb 2003: 28,500-1
2006 24,000-1

(Source: National Savings & Investments).

In the times of the credit crunch, people are looking for safe homes for their investments, and for many people, Premium Bonds fit the bill. The main selling point of Premium Bonds is that they are relatively safe investments backed by the Government.

Advantages of investing in Premium Bonds

There are a number of advantages of buying Premium Bonds:

1. Any one bond can win again and again.
2. Premium Bonds can be cashed at any point – the investor will receive their original investment.
3. Premium Bond winnings are tax free.
4. They fun – you money is safe, and you may win.

Will my chances of winning the Premium Bonds decrease in time?

The short answer is ‘Yes’, although National Savings stress that Ernie generates the winning number entirely at random. According to official figures, the odds on winning less than they were back in the 1990s. In 1993, the odds of winning were 11,000 to one. The odds are currently 24,000 to one.

What annual return can I expect if I buy Premium Bonds?

If you have average luck, you should expect to earn about 3.1% off your investment a year.


Unclaimed Premium Bond prizes

National Savings currently list over r 500,000 unclaimed prizes worth £30 million. However, if you discover some old premium bonds in your bottom draw that you have long forgotten about, you can still claim on them as there is no time limit on claiming prizes if the bond holder is alive. If the bond holder is deceases, any prizes have to be claimed within 12 months of the holder's death.

News articles on Premium Bonds

Nov 2008 Premium Bond prize fund to be reduced (Source BBC)
The number of Premium Bond prizes is being reduced following the recent cut in the Bank rate to 3%. >>> Read more



Other articles on types of investment that may be of interest :

>>>Stocks, shares and other securities
>>>Investing in bonds
>>>Investing in unit trusts
>>>Cash investments - savings accounts
>>>Premium bonds
>>>Investing in property
>>>Alternative investments

Explore the rest of this website for other articles on investments, plus the latest news on investments, share trading and online brokers.

 
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