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Premium bonds

Premium bonds are still the nation's favourite, but are they worth it? We weigh up the pros and cons of this popular tax-free NS&I savings product.

In this article
What are premium bonds? How do I buy premium bonds? How much interest do premium bonds pay? What are the chances of winning - and who is Ernie? Do I have to declare premium bond prizes on a tax return? How can I find out if I've won a premium bond prize?
Are old premium bonds ignored in the prize draw? How safe are premium bonds? How do I find lost premium bonds and unclaimed prizes? Can I inherit premium bonds from my parents? How do I cash in premium bonds or close my account? Should I put my savings into premium bonds?

What are premium bonds?

Premium bonds are a savings product from National Savings & Investments (NS&I) which offer the chance of winning between £25 and £1m each month instead of paying interest.

Each £1 you invest in premium bonds is given a unique number. All the numbers are put into a monthly draw to win tax-free cash prizes.

As it's a lottery, there is a chance you could win nothing at all - and, as your savings won't be earning any interest, they will effectively lose value over time due to inflation. 

But, with interest rates on regular savings accounts and Isas currently extremely low, you might think the chance to win a big cash prize is worth the risk.

NS&I is backed by the Treasury, so 100% of your money is safe.

How do I buy premium bonds?

You can buy premium bonds from NS&I online, by phone, by bank transfer or through the post.

If you already hold premium bonds, you'll be asked for your holder's number.

If you've never invested before, NS&I will check your identity and address - you may need to provide proof of both of these.

Each investment must be at least £25 and you can only invest amounts in whole pounds. 

The maximum investment is £50,000 - any numbers over £50,000 won't be eligible to win prizes. If these numbers win prizes in error, NS&I has the right the reclaim the prize.

Buying premium bonds for children

If you’re a parent, legal guardian, grandparent or great-grandparent you can buy bonds on behalf of children aged under 16 either online or by phone. 

The parent or guardian who's been nominated on the application will have to look after the bond until the child turns 16. 

Once the child reaches the age of 16, NS&I will send a letter detailing how the bonds can be managed. They should print and send a registration form, and may have to get their signature witnessed and sent in, too. 

Once they've been registered, they'll receive their own NS&I number and password, and can gain control of the premium bonds bought for them.

If you live outside the UK

If you live abroad you can apply for premium bonds by post and winnings can be paid into an international bank account.

You'll need to send proof of identity and your Tax Identification Number. Check local regulations first, though, as not every country allows you to buy and hold premium bonds. 

 

How much interest do premium bonds pay?

Premium bonds don't pay any interest on the money you save - but based on your chances of winning a prize, the average amount earned is 1% as of December 2020.

This was a decrease from 1.4% previously. 

While 1% sounds OK when set against current savings account rates, it's worth bearing in mind that for every £1m jackpot there will be many, many people not winning anything at all - so while lucky people might earn the equivalent of 1% or more, the average person will earn less than this, or nothing at all.

What are the chances of winning - and who is Ernie?

Premium bonds operate in the same way as a lottery, so you could hit the jackpot or never win a single prize. The odds of each £1 bond number winning a prize are currently 34,500 to 1.

The winners are chosen by Ernie, the NS&I's 'Electronic Random Number Indicator Equipment'. Ernie is essentially a computer that generates random numbers which are then matched against eligible bond numbers to determine the winners. 

Prizes start at £25 and go up to two £1m monthly jackpots. The total prize pool varies month by month. As you'll see in the chart below, the number of prizes increased sharply in December 2017 and then dropped quite sharply in December 2020.

 

Do I have to declare premium bond prizes on a tax return?

No. Any winnings are tax-free and aren't counted as part of your taxable income, so you don't have to declare them.

How can I find out if I've won a premium bond prize?

Prize winners are normally notified in writing (or in person if they have won the £1m jackpot).

You can check for recent and 'missed' prizes on the NS&I website by entering your bond holder’s number and selecting which month you want to check.

If you have lost track of old bonds, there's a free tracing service there, too.

You can choose for your prizes to be paid directly into your bank account or automatically reinvested into more premium bonds.

Are old premium bonds ignored in the prize draw?

No. All bonds are eligible for each month's draw, regardless of their date of issue (provided you have held them for a full calendar month following the month in which you bought them). A bond purchased in 1959 won the jackpot in July 2004.

It's true that more recent bonds win more often, but that is because there are more of these in circulation. Premium bond sales soared after the top prize was increased to £1m in 1994.

How safe are premium bonds?

NS&I is backed by the Treasury, so 100% of your original investment is safe, and you can get it back at any time. 

However, you may not win enough in prize money to protect your savings from inflation.

Other investments, such as NS&I index-linked savings certificates, offer a more certain, if fairly low, return – but they're unlikely to make you a millionaire.

How do I find lost premium bonds and unclaimed prizes?

With £68.6m in unclaimed premium bond prizes (November 2020), it's worth checking that you haven't missed out on a prize.

There's no time limit for claims. NS&I attempts to contact all winners, but can only do so if they have your current contact details.

If you know your holder's number, you can check using the online premium bonds prize checker

If you don't have any documentation, but believe you have some premium bonds, then you can use the NS&I tracing service. You can use the same form to check whether a deceased person had any premium bonds.

You will need to provide information such as date of birth, previous addresses and the name of the person who bought the bond.

Alternatively, you can use mylostaccount.org.uk to do a search.

NS&I will never deactivate a premium bond without a customer’s authority. Even if NS&I doesn't communicate with you for years, the premium bond will remain open and will be entered into prize draws. 

Can I inherit premium bonds from my parents?

Premium bonds can't be transferred, but their value does form part of the estate of the deceased.

Executors can claim premium bond funds from NS&I by completing this claim form or by post from National Savings and Investments, Glasgow, G58 1SB. 

How do I cash in premium bonds or close my account?

You can cash in some or all of your premium bonds at any time, without penalty. 

If you originally applied for the bonds online or by telephone you can simply log in to your account at www.nsandi.com or call 08085 007 007 to arrange this. 

The oldest bonds will be cashed in first and the money will be paid into your nominated bank account within around three working days. 

Should I put my savings into premium bonds?

Despite the fact that they don't offer any guarantees, and the odds of winning big are very small, premium bonds remain hugely popular.

Premium bonds offer the thrill of a flutter without the risk of losing your original stake, but they also don't offer a guaranteed return so aren't suitable if you want to generate a reliable income from your savings. 

Over the years, your money could be eroded by inflation if you don't win regularly, so we wouldn't recommend putting all of your money into them. It's much better to spread your money across multiple savings options. 

If you decide you'd rather earn guaranteed interest with a savings account or cash Isa, Which? Money Compare lets you search hundreds of accounts so you can find a good home for your nest egg.

We also combine this with our unique customer scores that show you how well the providers featured are likely to treat you in the long run.

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