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Premium bonds: what are they and are they worth buying?

The government-backed premium bond offers novice and experienced investors the security of a government-backed savings account, along with the chance to win up to £1 million each month.

We will cover the following topics in this article:

  1. How do premium work?
  2. What are premiums?
  3. Where can I purchase premium bonds?
  4. How much does the premium cost?
  5. How likely is it that I will win?
  6. How much do premium bonds offer in prizes?
  7. How often are premium bonds drawn?
  8. Where can I check my premium bonds?
  9. For how long does it take to withdraw premium bonds?
  10. Does it matter if premium bonds are safe?
  11. Must I declare earnings on premium bonds?
  12. Do premium bonds pass to me if I inherit them?
  13. Do premium pass to me if I inherit them?

How do premium bonds work?

A premium bond is a savings account issued by National Savings & Investments (NS&I) on behalf of the UK government. Investors do not receive interest; instead, they are entered into a random drawing for the chance to win up to £1,000,000.

On November 1, 1956, they were launched as a way for the UK government to raise funds, and they received investments of $5 million in the first month.

Today, bonds offer a risk-free option to save and have the chance of winning an amount every month ranging between £25.75 and £1,000,000. Nevertheless, you should consider the possibility that you will not receive a return on your investment.

What are premium bonds?

Premium bonds are unlike any other form of savings account and often people wonder ‘how do premium work?’

The answer is simple and similar to a lottery. With a minimum investment of £25 you will be entered into the monthly premium bond prize draw with every £1 invested. You increase your probability of winning each time you enter, up to a maximum investment of £50,000.

Where can I buy premium bonds?

You might be wondering, ‘How can I buy bonds?‘ If so, then read on, it’s easier than you think.

Premium bonds are issued by the UK government, and they can be bought online, over the phone, or by completing a paper application and mailing it. Visit NS&I’s website for more information. Premium can be purchased by investors in the amount of 50,000.

They make excellent gifts and are entirely possible to give away. If you’re buying premium bonds for this purpose, you can do it online or by mail.

You can give a premium bond to your own child online, or by phone or postal mail. It is necessary to designate a parent or guardian to manage the account until the child reaches his or her 16th birthday if you are gifting a premium.

How much do premium bonds cost?

The minimum amount that can be invested in a premium bond is $25. In terms of how much you can invest in bonds, the upper limit is £50,000.

There are no handling or start-up fees, nor is there a maximum or minimum period of time. When it comes to premium bonds, whatever amount you invest, between £25 and £50,000, determines your chances of winning.

How likely is it that I will win?

There is a 1% rate of interest. In other words, 1% of the value of all premium bonds is redistributed each month as prize money. In fact, your chances of winning bonds are 34,500:1. There is literally no other way to describe it.

Investors may hit the jackpot and win a large prize early on, but others may invest and wait for many months to see even a small return. As they say in the old adage, “you’ve got to be in it to win it”, so NS&I pays out over three million prizes per month!

How much do premium bonds offer in prizes?

Currently, the total prize amount for premium bonds is £96,395,075. There are three categories of prizes: high value (£5,000 to $1 million), medium value (£500 and $1,000), and low value (£25, $50, and $100). In total, there are approximately 3.3 million prizes each month.

A person named Agent Million will personally visit you if you win the £1,000,000 prize to tell you the good news. Winners are notified by text and/or email. You don’t have to claim your premium bond prize within a certain amount of time.

How often are premium bonds drawn?

They are drawn at the beginning of every month. NS&I chooses the winners using an electronic random number generator nicknamed ERNIE (Electronic Random Number Indicator Equipment). In the latest ERNIE, random winners are selected monthly using quantum technology and light.

Where can I check my premium bonds?

We have already mentioned that once you buy those precious premium bonds, you can be notified by text or email if you win. You can also download the bonds app to keep track of your winnings, or even add an Alexa skill to keep up with your winnings.

In the event that you win, you can cash in your bonds in several ways. You can choose to receive your winnings in a UK bank account or reinvest them by purchasing premium bonds.

For how long does it take to withdraw premium bonds?

Prizes are usually paid out within seven working days, however, if you decide to receive your prize by post as a check, this might take a bit longer. You can also cash in your current premium at any time and it takes approximately three working days.

As opposed to some forms of savings accounts, there are no penalties for withdrawing your money.

Does it matter if premium bonds are safe?

It is one of the safest forms of saving to use bonds. You shouldn’t have to worry about losing money on bonds because they are backed by the HM Treasury.

With stocks and shares, you can invest in a business or commodity and earn a higher return, but you also risk losing your investment. With premium, you will never lose your investment.

Must I declare earnings on premium bonds?

You do not need to include premiums in your tax return because they are tax-free. There are no rules against taking out multiple savings products such as tax-free ISAs, which is true for the majority of UK savings options. For more information, you can check out our other cash-savings recommendations.

Do premium bonds pass to me if I inherit them?

Although bonds are tax-free, they cannot be passed on to heirs. Depending on the amount invested, it may be relatively straightforward for family members or executors to withdraw the funds.

Is it easy for heirs or estate executors to inherit premium bonds?

According to our previous information, bonds cannot be inherited, but the money can be withdrawn and reinvested if you so choose. When someone you love passes away, finances should be the last thing on your mind.

In some cases, you may be able to withdraw the money online if the value of the premium bonds does not exceed £5,000 and you have the account details for the bonds.

A grant of representation (proof of probate) may be required by National Savings & Investments if the investment is over £5,000. This can be requested for any amount over $5,000; however, it’s more likely to happen for amounts over $5,000.

Tips for saving money

Premium are a difficult decision to make, and it depends on the size and scope of your current investment portfolio, your personal circumstances, and the level of investment you have made in the past.

An experienced financial adviser can help you decide if bonds are the right investment for you.

You can find your ideal financial adviser here.



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