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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? Video: Are premium bonds worth buying? How do I buy premium bonds? How much interest do premium bonds pay? 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 each month?
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 National Savings & Investments (NS&I) product, where each £1 you invest is given a unique number, and all numbers are put into a draw each month to win cash prizes.

For the chance to win a prize - all of which are tax-free and worth £25 to £1m - you forfeit an interest rate.

So, while your cash won't be growing while it's invested, you are in with a chance of winning up to £1m - but, as it's a lottery, there is also a chance you could win nothing at all, and your cash isn't protected from the reductive effects of inflation.

You can buy premium bonds on behalf of children, grandchildren or great-grandchildren up to the age of 16. 

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

Find out more: what is National Savings & Investments?

Video: Are premium bonds worth buying?

Our video explains how premium bonds work, and what you need to bear in mind before investing. 

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. 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 or grandparent, you can buy bonds on behalf of your child, grandchild or great-grandchild 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 outside of the UK, you can apply for premium bonds by post and winnings to 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. 

Each investment must be at least £25. 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.

 

How much interest do premium bonds pay?

The annual prize fund interest rate rose to 1.4% in December 2017, but premiums bonds don't actually pay any interest on the money you save.

Instead, working out the average probability of winning prizes, spread across every £1 prize and how much money is up for grabs, an average rate of 1.4% has been calculated.

So, while 'lucky' people might earn the equivalent of 1.4%, or more, the average person will earn less than this, or nothing at all. 

Monthly prizes start at £25 and there are two £1m monthly jackpots. The total prize pool is varied month-by-month - though the number of prizes awarded increased sharply in December 2017.

Who is 'Ernie'?

The NS&I's computer – Ernie (Electronic Random Number Indicator Equipment) – generates random numbers that are then matched against eligible bond numbers to determine the winners. 

Landing a prize is essentially a lottery, so you could hit the jackpot, or never win a single prize, but the odds of each £1 bond number winning a prize are currently 24,500 to 1.

The graph below shows how likely you are to win a prize over 12 months, comparing odds if you have £100 in premium bonds, up to the maximum of £50,000. 

If you hold £10,000 or more in premium bonds, you're likely to win at least one prize (£25 upwards) during a period of 12 months.

But, if you only bag the smallest prize once, that's the equivalent of just 0.25% interest over the year. And even with odds at 99%, there is no guarantee of winning anything at all.

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.

However, thanks to the personal savings allowance – allowing basic-rate taxpayers to earn £1,000 of interest a year tax-free, while higher-rate taxpayers can earn £500 - paying tax on savings interest isn't something most people need to worry about anyway.

Find out more: personal savings allowance and tax on savings interest

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

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 is 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 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, of course.

How do I find lost premium bonds and unclaimed prizes?

With £54m in unclaimed premium bond prizes, 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 their 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 investor had any premium bonds.

You will need to provide information such as your 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. 

Find out more: how to find lost bank and savings accounts

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. 

You can also make a claim by post using this premium bonds cash in form, with the option to cash in a specific set of your bond numbers if you wish.

It takes around eight working days to process the request and transfer the money into your nominated account.

Should I put my savings into premium bonds?

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

Around 21 million people hold a total of £63bn in premium bonds. Here's a regional breakdown: 

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Premium bonds offer the thrill of a flutter without the risk of losing your original stake, but they don't offer a guaranteed return so they 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 that you put all of your money into them. It's much better to spread your money across other 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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