Premium bonds


Premium bonds are a type of investment product offered by National Savings and Investments (NS&I), a government-backed savings institution. Investors purchase bonds that are entered into a monthly prize draw. Instead of earning interest on their investment, bondholders have the chance to win tax-free cash prizes ranging from £25 to £1 million. The prizes are funded by the interest earned on all the bonds in the prize fund. 


What are the odds of winning a prize?

The odds of winning a prize depends on the size of the prize fund and the number of bonds entered in the draw. The current odds are 24,000-1. 

Compared to other investment or prize draw options, premium bonds have relatively low odds. For example, if you play the National Lottery, the odds of winning the jackpot are around 45 million to 1. However, premium bonds have the advantage of being a low-risk investment, since the original investment is guaranteed, and bondholders have the chance to win prizes without putting their capital at risk. 

How do premium bonds work and are they a good investment option?

Premium bonds are a good investment option for those who want the chance to win cash prizes without putting their original investment at risk. However, they may not be the best option for those who seek a steady stream of income or a high rate of return on their investment. 

Once purchased, your investment is allocated a unique bond number which is entered into the monthly prize draw. Each bond has an equal chance of winning a prize, regardless of the size of the investment. If you win a prize, it is paid directly into your NS&I account, tax-free. 

This type of bond offers flexibility, meaning you can cash them in at any time without a penalty. However, if you cash in your bonds, you will no longer be eligible for future prize draws. 

What is the minimum investment?

The minimum investment is £25. This makes them an accessible investment option for a wide range of investors, and you can continue buying more bonds until you reach the maximum investment amount of £50,000. 

What are the tax implications of investing in premium bonds?

One of the biggest advantages is that any prizes you win are tax-free. This can be especially attractive for higher-rate taxpayers, who may be subject to higher rates of income tax on other investment products. 

However, premium bonds do not offer any tax relief on the original investment, unlike other investment options like pensions or ISAs. 

What happens to the unclaimed prizes?

If a prize is not claimed within eighteen months of the draw, it will be classified as unclaimed and added back into the prize fund. 

What is the maximum amount of money that can be invested in Premium Bonds?

The maximum amount of money that can be invested is currently £50,000 per person. The more you invest, the more bonds you will have in the prize draw each month, increasing your chances of winning a prize. 

Premium bonds are a unique investment option that offer the chance to win tax-free cash prizes without risking your original investment. They are a good option for those seeking a low-risk investment with the potential for high rewards.