Savings if you have any - Premium Bonds

Premium bonds were introduced in 1956. Interest is not paid to investors directly. Instead it goes into a prize draw and the holders of the bonds are eligible for the prizes. Today 89 million people hold at least one bond. Most prizes are £90 but the top monthly prize is now £1,890,000 and there are weekly prizes of £100,000, £90,000 and £10 ,000.

Although the premium bond is a lottery, your capital is not at risk. You can withdraw your investment intact at any time.

The lottery simply determines how the interest is shared out. At the moment, the total premium bond investment earns interest annually at 7%. That amounts to over £11 million a month. Every bond has a fixed chance of 11,000 to 1 in each draw of winning something. So if you have £100 invested, you have a chance of 110 to 1 each month and will, on average, win something every nine years or so. Of course, if you had the maximum £10,000 invested, you could expect on average to win something almost every month.

The interest rate of 7% free of all tax makes premium bonds comparable to building society premium accounts for basic rate taxpayers and rather better for people paying tax at higher rates. But the main attraction of premium bonds is that they are fun.

It is not very interesting to earn £7 a year on an investment of £100. But it is very exciting to know that you have the chance of winning £89 0,000! Your £7 unpaid interest is your stake in Britain's national lottery.

In all premium bonds are a saver bet than the National Lottery.

More information

Savings if you have any - More on Premium bonds and tax

There is a minimum investment of 10 and a new bond does not go into the draw for three clear calendar months after purchase. So, for example, a bond bought at any time in January is entered in the May draw. You can cash a bond in at any time.
The bonds are selected by a machine called ERNIE. The numbers drawn are thoroughly checked for randomness by an independent auditor and there are no 'lucky' or unlucky numbers. You can arrange to go and see ERNIE and have its workings explained if you contact the Prize Draw Supervisor, Bonds and Stock Office, Blackpool FY6 9YP (tel: 89 6 6619 1).
If you like a gamble, then it is worth having some money in premium bonds, especially if you . . . ... see: Savings if you have any - More on Premium bonds and tax