Premium bonds celebrate 60th anniversaryWhich? explores whether they're worth the gamble
01 November 2016
Premium bonds were launched 60 years ago to the day and remain a hugely popular investment.
Some 21 million people in the UK have a total of £63bn invested in the National Savings & Investments (NS&I) products.
But are they the smartest place to invest money? Which? weighs up the pros and cons.
Premium bonds: the basics
Premium bonds don't generate interest. Instead, each bond is entered into a monthly prize draw and winners are selected at random by NS&I.
Each month, you could win one of two £1 million jackpots in the premium bonds prize draw. Over 2 million prizes are up for grabs, starting from £25.
You can invest from a minimum of £100 to a maximum of £50,000.
- a chance to win a £1 million jackpot and other tax-free prizes each month
- your savings are 100% secure
- you can make the most of your tax-free investment opportunities
- you won't earn a regular income
- you won't get a guaranteed return
- the value of your investment could erode over time
Find out more: premium bonds - our guide explains everything you need to know
Premium bonds: what are the odds of winning?
For each £1 bond you own, the odds of winning a prize are 30,000 to one. All prizes are tax-free.
The monthly prize pot is generated from interest paid on the total amount invested in bonds. This is currently set at an annual rate of 1.25%. This means someone with 'average luck' may get a return of around 1.25% on their investment.
On one hand, there's a possibility you'll generate returns far higher than this, or even a life-changing amount of money. On the other, if you fail to win big or regularly pick up smaller prizes, the value of your nest-egg will be eroded by inflation.
What are the best alternatives to premium bonds?
Isas pay tax-free interest on your savings. The overall limit for new deposits into an Isa is £15,240 during the 2016/2017 tax year. This can be placed into a cash Isa, a stocks and shares Isa or a mixture of both.
The best rate instant-access cash Isa in the Which? Money Compare Tables comes from Coventry Building Society, offering 1.1% AER.
Which? Money Compare table: - instant-access cash Isas - find a great deal
There's no annual limit to the amount of savings you can place into a traditional savings account, whereas you can only invest £50,000 in Premium bonds.
According to the Which? Money Compare tables, the best rate instant-access savings account available to everyone is Tesco Bank's Internet Saver, at 1.01% AER.
Which? Money Compare table - instant-access savings accounts - hundreds of accounts compared
There are some current accounts paying better rates of interest on in-credit balances, although you'll often have to meet a number of criteria to qualify for interest.
Savers can earn 1.5% AER on balances up to £20,000 in Santander's 123 account. For those with smaller balances, Nationwide's FlexDirect account offers 5% AER in the first year, on balances up to £2,500.
Find out more: best rate current accounts - see our tables for more information
- If you're looking to invest for the first time, see our beginner's guide to investment
- Our interactive flowchart can help if you're confused about the best place for your savings
- For a personalised answer to your financial query, call the Which? Money Helpline
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.