Premium bonds are 60 years old – but are they worth the effort with so many other places to keep money safe?
The first bonds were issued on November 1, 1956 and now more than 21 million people hold about £63 billion in savings with the government-backed investment.
But financial products change fast, and in recent years pensions, ISAs and new tax rules have made premium bonds less attractive.
What are premium bonds?
Premium bonds are like the National Lottery without losing money. Savers by a minimum stake of £100 and a maximum of £50,000.
Every month, each bond is entered in a draw for prizes worth between £25 and £1 million, so a winning or losing bond can roll-over time after time.
The bonds pay no interest, but winners pay no tax on their prizes.
What are the chances of winning?
Not that good. Technically, as each bond has the same chance of winning, the more you hold, the more likely you are to win.
The chances of winning £25,000 or more run into the billions to one – from 1 in 3.165 billion for £25,000 to 1 in 31.65 billion for the £1 million prize.
For someone to win big, millions of people must lose.
Should I save somewhere else?
New rules that allow earning up to £1,000 savings interest tax free and even with record low rates paid on saving accounts mean you are guaranteed to ‘win’ a tax-free return from money in the bank.
The same goes for money invested in pensions and ISAs.
Unless you are lucky, your premium bond is unlikely to give you a return anywhere near £1,000 a year.
Inflation takes a bite out of premium bonds
Because premium bonds pay prizes instead of returns, even if you win small, you must collect winnings of at least 1.6% of your stake – the current inflation rate – to stand still otherwise rising prices are eroding your savings.
The same rule also applies to other cash savings and investments.
How do I know if I am a winner?
If you are a winner and NS&I, the agency that runs premium bonds, has your latest contact details, then they will contact you direct.
If you have forgotten to update your details, use the premium bond prize checker to see if you are a winner.
