Two lucky premium bond holders scooped a million-pound jackpot today, as the winners of the May prize draw were announced.
This month, more than 3.29m prizes were handed out by NS&I, setting a new record for the largest prize pool.
Which? reveals the winners of the May draw and looks at how many prizes are up for grabs.
Winners of the May premium bonds prize draw
Each month, NS&I hands out two million-pound prizes – and this month, these went to winners in Kent and York.
The bond holder in Kent, who holds the maximum value of £50,000 in premium bonds, bought their winning bond in August 2013. The lucky number proved to be 210VY427248.
In York, meanwhile, the jackpot winner holds £45,000 in bonds. The saver had bought their winning bond (number 152JH073647) a decade ago – back in February 2009.
While the jackpots tend to attract the most attention, there are millions of other prizes handed out each month.
In May, the NS&I awarded five prizes of £100,000, as well as 12 worth £50,000 and 21 worth £25,000. There were also 54 prizes worth £10,000 and 108 worth £5,000.
Find out more: premium bonds – everything you need to know
How big is the prize pool?
The total number of prizes awarded in May hit a record high, with 3,292,546 prizes given out to premium bond holders.
Compared with May two years earlier, this is a 43% increase.
The total value of the prizes awarded also peaked, reaching more than £94m, up from £65m two years ago.
Why does the prize pool grow?
You may wonder why the prize pool has grown so dramatically in recent years, especially between November and December 2017.
The size of the prize pool is based on two factors – the number of bonds in the draw, and the prize fund rate set by the NS&I. The prize fund rate is the return a person of average luck could win on their savings over the year.
As more bonds are sold each month, the NS&I adjusts the number and value of prizes in the pool to ensure that the prize fund rate remains the same.
Currently, the prize fund rate is 1.4%.
How is the prize pool worked out?
The formula to do this is quite complex. Essentially, prizes are split into three bands – high value, medium value and low value.
High-value prizes, worth £5,000 or more, account for 5% of the total pool. There are always two £1m prizes, and the rest of the funds are divided between the other categories.
Medium value prizes – worth £500 or £1,000 – account for a further 5% of the pool. There’s one £1,000 prize for every £500 prize.
Finally, the remaining 90% of the pool is split between the low value prizes, worth £100 or less.
The result is that the vast majority of prizes are worth £25 – in this draw, these accounted for 3.23m of the 3.26m prizes handed out.
- Find out more: what is National Savings & Investment?
Will I earn 1.4% on premium bonds?
The 1.4% prize fund rate may sound like it can rival many savings accounts. But keep in mind that there’s no guarantee you’ll earn that much, or even that you’ll win anything at all.
The prize fund rate represents an average only, which is skewed by the high-value prizes on offer.
A more helpful way to think of it is in terms of odds. Any given bond has a 24,500 to 1 chance of winning in any prize draw. The more bonds you hold, the more ‘entries’ you have in the draw.
Over the course of a year, someone holding £1,000 worth of bonds has a 49% probability of winning any prize, while someone holding £10,000 has a 99.99% chance.
Then again, the prize could be as little as £25, which on a £10,000 investment would equate to a return of 0.25%.
Benefits of premium bonds
If you’re seeking a guaranteed return on your cash, you’re likely to be better off with a savings account. At the same time, premium bonds offer the tantalising possibility of bigger windfalls, as well as deposits that are fully backed by the government.
Some of the other benefits of premium bonds have become less significant in recent years. It’s true that all your winnings are tax-free, which is particularly appealing if you land a high-value prize.
But many savers now benefit from a tax-free allowance on savings interest – basic-rate payers get a £1,000 personal savings allowance, while higher-rate payers can earn £500.
All savers can also take advantage of Isa accounts, where you can deposit up to £20,000 per tax year into a tax-free wrapper.
Deposits with the NS&I are fully guaranteed by the government, with no maximum limit. This compares favourably to the protection offered on most savings accounts through the Financial Services Compensation Scheme, which will refund you up to £85,000. However, given the maximum investment into premium bonds is £50,000, you would be protected by this amount under both the NS&I and the FSCS.
- Find out more: FSCS – are my savings safe?