The cost of living crisis wreaking havoc across the country isn't set to end anytime soon, with the Bank of England predicting tha t a recession is impending this winter.
As the financial situation remains bleak, millions of households are trying to make the most out of their savings and one option is through Premium Bonds.
Premium Bonds were first introduced in 1956 and are currently the UK's biggest saving product, with over 21 million people across the country saving £118billion in them.
The Bonds allow buyers to save their money securely and gives them a chance at winning cash prizes every month worth up to £1million.
Here's everything you need to know about what Premium Bonds are, whether they're a good investment and how to buy them.
What are Premium Bonds?
Premium Bonds are a savings product issued by the National Savings & Investments (NS&I); they are essentially a savings account that you can put money into and take it out whenever you want.
However, unlike other savings accounts, you don't earn interest on Premium Bonds. Instead, you are entered into a monthly prize draw where you could win between £25 to £1million tax free.
Premium Bonds are often considered as cross between a savings account and the lottery, but unlike the lottery, you don't lose the money that you put into Premium Bonds.
How do Premium Bonds work?
For every £1 you invest in Premium Bonds you get a unique bond number, so if you save £100 you'll get 100 bond numbers and each number gives you a chance at winning a monthly prize.
Usually you'll need to hold the bonds for a month before they're eligible to win and they will remain eligible to win until you cash them in.
Your bonds will be included in a monthly lottery-style draw, which is done by NS&I's random number generator, known as ERNIE.
Cash prizes from between £25 and £1million are handed out each month and the prizes are tax free. You can check to see whether you have won anything by entering your holder's number on the NS&I prize checker page on their website, or by using the prize checker app.
If you win a prize you can choose for it to either be paid straight into your bank account, reinvested into more bonds or be paid via cheque through the post.
With Premium Bonds, you can withdraw all or part of your savings at any time.
When is the Premium Bond draw?
The winning bond numbers are made available on the first working day of the month, meaning if the new month starts with a weekend, the 3rd of the month will be the latest that they're published.
The remaining draw dates in 2022 are as follows:
- September 1
- October 3
- November 1
- December 1
The Premium Bond draw dates in 2023 are:
- January 3
- February 1
- March 1
- April 3
- May 2
- June 1
- July 3
- August 1
- September 1
- October 2
- November 1
- December 1.
The one exception is if you win the whopping £1million prize. If that's the case, you'll get a visit from an NS&I official a day before the first working day of the month to give you the heads up.
How to buy Premium Bonds
Anyone over the age of 16 can buy Premium Bonds and parents, legal guardians, grandparents and great-grandparents can also invest on behalf of their child or grandchild under the age of 16.
There are a few different ways that you can buy Premium Bonds from NS&I.
You can either purchase them online using NS&I's secure online system, buy them over the phone at any time of the day, or you can complete a paper application form and buy bonds through the post with a cheque payable to NS&1.
If you have already bought Premium Bonds before, then you can also buy more via a bank transfer.
Each investment must be at least £25 and the maximum holding level is £50,000.
Can you lose money on Premium Bonds?
All the money that you put into Premium Bonds is 100% secure.
This is because NS&I is part of the government and is backed by the Treasury. It is also regulated by the Financial Conduct Authority so the money that you put in to invest is totally safe.
You can withdraw the money that you put into Premium Bonds any time you like.
However, your savings won't be earning any interest so they will lose value over time due to inflation, but there is the chance of winning cash prizes and the average annual prize rate is 1.4%.
What are the disadvantages of Premium Bonds?
While there's no risk of losing your original stake in Premium Bonds, and you can withdraw the money you put in whenever you want, there can be some disadvantages in comparison to other types of saving accounts.
The odds of winning big on Premium Bonds are very small, with odds currently at 1 in 24,500 to win a £25 cash prize and at 1 in 59 billion to win the top £1million prize.
The average annual prize rate of 1.4% means that for every £100 paid into Bonds, an average of £1.40 a year is paid out.
Meanwhile, basic-rate taxpayers can earn £1,000 of tax-free interest a year because of the personal savings allowance, and other savings have better interest rates than the 1.4% prize rate.
The top easy-access savings, easy-access ISA, one-year fixed savings and two-year fixed ISAs all have higher interest rates than the 1.4% prize rate.
When it comes to Premium Bonds, you are only gambling on the interest rate, not the money you put in.
So while you could make more money via interest on other accounts, you may still decide to take the chance on winning some cash instead.
