Premium bonds: Safe, tax-free and fun
Premium Bonds, offered by National Savings and Investments (NS&I) in the UK, present an intriguing option for those looking for a safe and potentially lucrative investment opportunity. In this article, we'll explore the concept of Premium Bonds, their safety, tax-free status, and the excitement of potentially winning big!
What Are Premium Bonds?
Premium Bonds are a unique form of savings product offered by NS&I, owned by the UK government. Instead of earning interest like traditional savings accounts, Premium Bonds offer the chance to win tax-free cash prizes in monthly prize draws. Each £1 invested in Premium Bonds represents one entry into the prize draw. The minimum investment is £25, and the maximum holding allowed is £50,000 per individual. Anyone can invest in Premium Bonds (children under 16 need to have a nominated parent or guardian).
You can buy them easily online through the NS&I website.
Watch-out: Bonds need to be purchased and held one month before they are entered into the prize draw (e.g. if you buy on 6th February, they would be entered into the draw at the beginning of April). Therefore, it makes most sense to purchase them late in the month, to minimise the waiting period.
How Much Can You Make?
The allure of Premium Bonds lies in the excitement of potentially winning cash prizes. NS&I holds monthly prize draws where bond numbers are randomly selected by ERNIE (Electronic Random Number Indicator Equipment). The prizes range from £25 to £1 million, with a variety of denominations in between.
Similarly to a lottery, the more money you have put into it, the more chance you have of winning. It's important to note that the chances of winning a prize depend on the total value of Premium Bonds held and the prevailing interest rate.
Watch-out: The more bonds you hold, the greater your chances of winning, but it's crucial to understand that winning is not guaranteed. While some lucky individuals may win substantial prizes, others may win smaller amounts or nothing at all in a given month.
How Do I Know If I’ve Won?
There is a prize draw at the beginning of every month. You can find out if you have won a few options, depending on what you prefer:
Log into the NS&I app - it will show you a fun little graphic to build some suspense, followed by any prizes you have won, and you can download it for free from the Apple App Store or Google Play Store
Check your emails - they send you an email you to let you know you have won
Ask Alexa - there is a “prize checker” skill on Amazon Alexa
If you win the big £1 million prize, someone comes to your house to tell you in-person you have won!!
Receiving your winnings is really easy, and you can choose how you want to receive them, either:
Automatically re-invested in more premium bonds
Paid directly into your bank account (winnings come typically on the 7th day of the month)
In a cheque by post (this may take longer to receive)
Winnings over £5K require you to fill in a special “claims form” that they will send to you on the 3rd day of the month
Safety and Tax-Free Status
One of the key attractions of Premium Bonds is their safety. As they are backed by the UK government, they are considered one of the safest ways to save money. Unlike other forms of investment, such as stocks or bonds, the value of Premium Bonds will not fluctuate with market conditions. This stability provides peace of mind to investors, knowing that their capital is secure.
Additionally, a big positive is that the prizes won in Premium Bonds draws are entirely tax-free. This means that any winnings you receive are yours to keep in full, without deductions for income tax or capital gains tax. For higher-rate taxpayers especially, this tax-free status can significantly enhance the overall return on investment.
Can I Withdraw My Money Whenever I Want?
Premium Bonds offer flexibility in accessing your money, without penalties. You can “cash-in” your premium bonds at any time, online, by phone, or by post. The money usually is back into your account within 3 working days.
In Summary - Is It A Good Investment?
Premium Bonds offer a unique blend of safety, tax-free status, and the thrill of potentially winning cash prizes. While they may not offer guaranteed returns like some other investments, they provide a fun and flexible way to save money. Whether you're saving for a rainy day or simply enjoy the excitement of the prize draws, Premium Bonds can be a valuable addition to your investment portfolio.
Currently you can get better saving rates in tax-free ISAs, with a guaranteed financial return. However, you are only able to put in £20K to an ISA a year. Therefore, if you are a higher or top-rate tax payer, have filled your yearly ISA allowance, and are looking for a safe place to put your money, premium bonds could be ideal!
Before investing in Premium Bonds or any other financial product, it's essential to consider your individual financial goals, risk tolerance, and investment timeframe. While Premium Bonds may not be suitable for everyone, they can be an excellent option for those seeking a safe and potentially rewarding savings vehicle.
So, if you're looking for a safe, tax-free, and fun way to save money, why not consider investing in Premium Bonds? Who knows – you could be the next lucky winner of a substantial cash prize!