Premium Bonds
A Third Age Property & Finance feature
by our Property & Finance Editor

Premium Bonds are the biggest single savings product in the UK. It is said that nearly half the UK population has money invested in them. But what are they and are they a worthwhile investment?

The answer to that second question largely depends on your point of view. First of all, let’s look at the facts.

What are Premium Bonds?
Premium Bonds are Government bonds issued by the National Savings & Investments scheme (NS&I), formerly known as the National Savings Bank. Effectively a state-owned savings bank administered by HM Treasury on behalf of the Government, NS&I attracts funds via numerous savings products in order to help fund the Government’s public sector borrowing requirement. Introduced in 1956 by then Chancellor of the Exchequer Harold Macmillan, Premium Bonds are 100% guaranteed by HM Treasury. They pay no interest to individual savers, but instead the interest paid by the Treasury on behalf of the Government is paid into a prize fund and a resultant monthly prize draw.

Anyone over the age of 16 can buy Premium Bonds, or they can be purchased on behalf of those under the age of 16 by parents and grandparents.

Each bond is worth £1, the minimum investment is £100 (100 x £1 bonds), the maximum holding per individual is £30,000 and the money can be withdrawn at any time. Oh, and any winnings are free of UK Income Tax and Capital Gains Tax!

As with any prize draw, there are winners and losers. In the case of Premium Bonds, the winners are those whose bond numbers are randomly drawn in any given month by ERNIE (Electronic Random Number Indicator Equipment) in the prize range of £25 to £1 million pounds. The losers are those who don’t win that month, because any theoretical interest their investment may have earned has been paid out to others who have won prizes. But since there are over a million prizes (and winners) each month, if you don’t win one month you stand as much chance of winning the next month.

So are Premium Bonds a worthwhile Investment?
We think every Third Ager should have at least some money invested in Premium Bonds, even if it’s only the minimum £100. Admittedly some may find that they would have received a better return on their investment in any given year by having it on deposit with a bank or building society where it at least accrues interest that may help to offset any inflationary loss. But for others, especially the big prize winners, they will be much better off.

Importantly though, you have to be ‘in it to win it’ as the saying goes. And surely it’s worth taking the gamble even it’s with only a little of your money. The potential losses in terms of investment return on your savings and the fact that inflation can eat into the value of your investment are surely worth the gamble.

It’s just like playing the National Lottery – sometimes you win, sometimes you lose. But the difference between the National Lottery and Premium Bonds is that with Premium Bonds you still have your original stake after you’ve gambled. You can gamble month after month with the same investment and still have your original stake at the end of it to withdraw any time you choose. Sounds like a pretty safe bet to us, especially if you’re one of the 12 lucky £1 million prize winners every year!

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I believe you can look online for past winning numbers, but I don't know how far back they go. Try googling Premium bonds and see what comes up. And if you have a fortune waiting for you, remember who pointed you in the right direction.

Shame. I was counting on that for next Christmas!