There's no investment risk: Because Premium Bonds are government-backed there is no chance of losing your money. This used to be more of a selling point, but the Financial Services Compensation Scheme (FSCS) currently protect all UK savings accounts up to £85,000 per person, per institution the savings are held with.
Drawbacks of Premium Bonds
If you want a regular income, Premium Bonds may not be the best option for you - you may be better off looking at different types of investment or savings accounts, including isas. You'll also receive no interest, as the interest accrued on bonds goes towards the prize fund.
As long as you haven't cashed your Bonds in, they're still valid and they're still being entered into our monthly prize draws.
With Premium Bonds there is no risk to your capital – so the money you put in is totally safe – it is only the 'interest' that is a gamble. And as Premium Bonds are operated by NS&I which, rather than being a bank, is backed by the Treasury, this capital is as safe as it gets.
Despite that, says Coles, people need to remember that the odds of a win are still 24,000-1, “so the average person with average luck will still win nothing”.
If you want instant access to your cash, have £50,000 to invest, and especially if you pay higher rates of tax they are good value, returning on average around 2pc a year tax-free. But it is a close-run thing as market rates from banks and building societies are rising rapidly. Premium Bonds work like this.
One in a million
Our Agents Million have the important task of delivering the winning news in person to the two monthly jackpot winners. Since the first Premium Bonds millionaire in 1994, over 400 new millionaires have been paid a visit.
Dealing with Premium Bonds after someone's death
NS&I does allow them to be held by the estate for one year after death and during this time they will still be entered into the prize draw each month. Any winnings will be sent by warrant, which is similar to a cheque, to the person entitled to claim the money.
For someone with 'average' luck, Premium Bonds currently offer potentially higher returns than some savings accounts. The Premium Bond prize rate rose to 3.00% this month (January), which is higher than the best easy access savings account rates, which only offer 2.86%, according to financial website Moneyfacts.co.uk.
If the value of the premium bonds is under £5,000 and you have the premium bonds account details, then you may be able to withdraw the money online. If the investment is over £5,000 then you may need to supply a grant of representation (proof of probate) to National Savings & Investments.
While Cash ISAs and Premium Bonds are very low-risk, they are unlikely to offer high returns. If you're happy to take more risk for the possibility of better returns, then a Stocks and Shares ISA might be better for you.
Each £1 placed into Premium Bonds has an equal chance of getting a prize, so the more savings you have, the more chance you have of winning. Martin emphasised that Premium Bonds won't pay out much more on average than the interest on easy access or fixed rate savings accounts.
What happens to someone's Premium Bonds when they die? Unlike most other assets, Premium Bonds cannot simply be passed on to beneficiaries of the estate, as they cannot be transferred into someone else's name.
No income tax or Capital Gains Tax is payable on the prizes won on Premium Bonds, however the value of the Premium Bonds owned will be included in a deceased person's Estate for Inheritance Tax purposes.
You never need to worry about an unclaimed prize. We'll hold on to it until you get in touch with us. And there's no time limit to make your claim. Just log in to view your prize history, or use our prize checker to see if you have any prizes you don't know about yet.
OPTION: Payment to a beneficiary is at the option of your financial institution. If your institution doesn't want to make the payment, refer the customer to TreasuryDirect.gov and its instructions for cashing by mail. Don't cash the bond. The customer must have a certified death certificate.
Premium Bonds are effectively savings accounts held with the government. Rather than getting interest back on your savings, you are entered into a draw with a top prize each month of £1 million. Other prizes vary between £25 and £100,000 and if you do win it's all tax-free.
The chance of winning the £1 million jackpot over the course of a year (or 12 monthly prize draws) is one in 49,563,028 if you have £100 in Premium Bonds. If you have £1,000 invested, the odds of winning are one in 4,954,991. And if you have the maximum £50,000 in bonds, your chances increase to one in 96,839.
A There are all sorts of theories. However there is absolutely no evidence that holding premium bonds in a single block has a better chance of winning.
Although winners are chosen at random, the more Bonds people have, the higher their chances are of winning. NS&I said: "By topping up regularly each month, customers are giving themselves further chances to win in the monthly Premium Bonds prize draws."
Parents can invest in premium bonds for children. However, children under the age of 16 are not allowed to buy premium bonds, so their parents have to be custodians of their premium bonds.
Premium Bonds
Parents, legal guardians and (great) grandparents can invest on behalf of their child or grandchild aged under 16.
You can keep buying bonds until you reach the maximum holding level of £50,000. You get a unique bond number for every £1 invested. So, if you save £100, you'll get 100 bond numbers (each with a chance to win a prize).