How to Buy Premium Bonds in the UK
Updated February 15, 2024
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Buying Premium Bonds is easy to do, and you have many purchase options, which include:
- Online
- Over the phone
- By post
- Bank transfer
- At Post Office branches
If you’re interested in purchasing Premium Bonds, read on to find out whether or not they are the right option for you.
Are you thinking about buying Premium Bonds in the UK but aren't sure whether they’re the right option for you? NS&I Premium Bonds represent a great way to earn additional income but there are some important factors to consider.
Since the earnings aren't guaranteed, it's important to do due diligence and work out whether Premium Bonds are right for you. However, we’re here to help. Here is everything you need to know about buying Premium Bonds in the UK.
What Are Premium Bonds?
UK National Savings & Investments Premium Bonds are a unique type of savings account issued on behalf of the government. The Premium Bond programme was first launched on 1 November 1956 to expand government funds.
It quickly gained popularity, receiving £5 million in investments in the first month alone. The popularity of Premium Bonds UK can be explained by their risk-free nature and the chance of winning anywhere from £25 to £1 million in tax-free payments monthly.
However, keep in mind that there is a much higher chance that you will receive no return rather than winning substantial money.
You can place money into the account, and also remove it. It's similar to other UK savings accounts, except here the interest you gain on your investments is called winnings. The interest on the savings is decided by a monthly prize draw.
The minimum investment amount for Premium Bonds is £25, and you can buy them in multiples of £25. When you invest in Premium Bonds, each £1 you hold represents a unique bond number, and each bond number has an equal chance of winning a prize in the monthly draws.
While the majority of bondholders will receive smaller prizes, such as the minimum £25, there is also a chance of winning larger prizes, including £50, £100, £500, £1,000, £5,000, £10,000, £25,000, £50,000, £100,000, £500,000, and even the top jackpot of £1 million.
Prize winners are informed by email or text message. If you win the £1 million jackpot, an agent will visit you personally to notify you about the winnings. There’s no time limit for claiming UK Premium Bond prizes. You can get your winnings within seven working days.
However, if you want to receive your winnings by post (as a cheque), you might have to wait a little longer before receiving your prize. You can also cash in any bonds you currently hold at any point, which takes approximately three working days.
How Do I Buy Premium Bonds?
Do you want to buy Premium Bonds UK? If so, there are several ways to do it. The easiest way to purchase Premium Bonds is through the National Savings and Investments website. All you need to do is register, provide the necessary information and make your purchase.
When you do, you will be given a specific holder's number. You'll need this number to cash in on your winnings. All your bonds will be filed under this number.
It is also possible to obtain the bonds by calling the NS&I or filing your application and requesting them by post. The minimum purchase amount to invest in Premium Bonds and participate in the monthly draw is £25. The maximum amount an individual can buy in bonds is £50,000.
Those who purchase the bonds must be over 16 years old, but those under 16 can hold them via a guardian or parent. When buying the bonds on behalf of someone else, it's best to buy UK Premium Bonds online or through the postal service.
Gifting Premium Bonds to children and grandchildren can be done online, via phone or by post. If you want to gift Premium Bonds to a minor (under 16) unrelated to you, you must nominate a parent or guardian on your application.
They will need someone to manage their NSI UK Premium Bonds until they reach the age of 16. Besides purchasing them for minors, gifting Premium Bonds is also possible. If you’re getting them for this purpose, you can do so by post or through the website.
To be eligible to win, you need to have the investment in a bond for one month. All bonds will continue to be eligible for the draw, as long as they aren't cashed in. Investors can cash them in by making a request online, by phone or by post.
Reasons to Get Premium Bonds
Those considering how to buy Premium Bonds UK might be wondering whether Premium Bonds are suitable investment options for them or not.
Let’s look at all the reasons to get Premium Bonds.
You’re Looking for the Chance to Win a Tax-Free Cash Prize
The beauty of Premium Bonds is that taxes don't apply to the interest. If you’re looking for additional earnings that you can maximise by avoiding taxes, investing in Premium Bonds is a great option.
Winning up to £1 million a month when tax exemptions apply makes for an exciting prospect. It can also be a phenomenal incentive, just like buying tickets for the lottery.
You’re a Parent, Guardian or Other Relative Looking to Buy for a Child Under 16
Children under 16 can benefit from their winnings later in life. It can be a good investment for parents, guardians or relatives looking to provide additional cash resources for children's education and other needs.
You Are Looking for a Low Risk Investment
Premium Bonds are backed by the UK Government, which ensures that the initial investment is secure. Unlike investments exposed to market fluctuations, Premium Bonds offer peace of mind as the capital is not at risk and can be fully redeemed at any time.
Reasons Premium Bonds Might Not be For You
However, there are also reasons why Premium Bonds UK might not be a suitable option for you.
These include:
You’re Looking for a Regular Income
While you can possibly win heart-fluttering amounts, the chances of doing so are low. For most people, even the best Premium Bonds UK cannot be a substitute for a dependable income.
They can be a source of additional cash, but you can't count on them every month. Some people wait many months to win something and then won't win again for quite some time.
You’re Looking For Guaranteed Returns
As mentioned before, there are no guarantees of winning interest on UK national Premium Bonds. If you aren't okay with gambling the interest, opt for another savings or pension account.
Better yet, spread out your capital into several different savings accounts (including Premium Bonds) to maximise your chances of returns.
You Don’t Want to Worry About the Impact of Inflation on Savings
In recent times, Premium Bond interest rates have become highly subject to inflation. Even if you calculate the risk, returns and tax savings, relying on Premium Bonds to get the most out of the overall value of your investment is not a good idea.
What Are the Chances of Returns?
It is very challenging to predict the chance of returns a person will get from their investments. The more a person invests, the higher their chances of receiving a return.
For instance, those who buy less than £1,000 have a return rate of nearly 0%, whereas those investing £50,000 are more likely to get a prize rate of 2.25% and average returns of £1,275.
The current interest rate for UK government Premium Bonds is 1.4% per year. This means that for every £100 invested, you have an average winning of £1.40. For every £1 you purchase in a premium savings bond UK, your chances of winning are 24,500:1.
With the draw taking place once a month, this is quite low. There have been cases of people winning a large prize shortly after investing the minimum amount. Others had to invest many times and wait many months, only to have a minimal return.
However, with every £1 you purchase in a premium savings bond UK, you increase your chances of winning. NS&I pays out a little over three million prizes each month. The more numbers you have participating in a given month, the higher the chances are of you being among those winning the three-plus million prizes.
At the beginning of April 2023, the total prize for UK Premium Bonds was £96,395,075. The draw takes place at the beginning of each month when a random number generator called ERNIE (Electronic Random Number Indicator Equipment) selects the winners.
ERNIE is based on quantum technology, which allows the system to randomly pick the winners monthly. There are also three levels of winning amounts. There are low-value (£100, £50 and £25), medium-value (£1,000 and £500) and high-value prizes (£5,000 to £1 million).
It is important to note that all returns are tax-free. This is good news because it means you don't have to include them as part of your tax return. Premium Bonds follow the same principles as the majority of UK savings options, including tax-free ISAs.
Because Premium Bonds are tax-free, you can’t inherit them. That said, depending on the amount invested, family members of the deceased or the executors of their estate can easily withdraw funds from Premium Bonds. They just have to provide the holder's number and their eligibility to handle the finances of the deceased.
Despite being a bit of a gamble, investments with Premium Bonds are secure because they’re backed by the government. Underwritten by the HM Treasury, Premium Bonds are one of the safest saving methods available. This is unlike investing in commodities or businesses through shares, where you risk losing money for a chance of higher returns.
With Premium Bonds, you might not have high returns. However, you won't have to worry about losing your investment. Additionally, unlike with many other savings accounts, with Premium Bonds you can withdraw money without incurring penalties.
The Biggest Concern of Bonds
One of the biggest concerns is that bonds tend not to keep up with inflation. Therefore, there is a real chance that investors fail to gain value from their investments. While buying into UK Premium Bonds is still considered one of the safest forms of investment, many are concerned about the interest rates.
Set by the Bank of England, interest rates on the best Premium Bonds UK were exceptionally low in the last 14 years. For many investors, this lack of interest meant that there was little incentive to have your money in a regular savings account.
However, after recent global events sent the world's economy into speedy inflation, the Premium Bonds UK interest rate quickly rose. When inflation began to rise (along with the Bank of England's base rate), the money people invested in Premium Bonds began to lose value at an incredible speed.
This made people very cautious about purchasing Premium Bonds. The chances of winning through your number being selected by ERNIE are low, and if you don't win that month, your savings would likely be earning much more in a regular account.
Frequently Asked Questions
NS&I UK Premium Bonds are a type of savings account into which you can deposit money and later withdraw it. A monthly prize draw determines the interest on the bonds.
National Savings UK Premium Bonds aren't a typical savings account. With every £1 you invest in bonds, you're buying into the monthly prize draw that determines the interest you earn on your investment. Every purchase increases your chance of winning, but there is a minimum amount of £25 to participate.
If you're computer savvy, the best way is to buy Premium Bonds online UK through the NS&I website. You can also purchase your bonds through the phone. Alternatively, you can get an application and request them by post. If you're buying the bonds on someone else's behalf, it's best to do it either online or by post.
You get information about lost UK Premium Bonds on the NS&I website by logging in to your account. Alternatively, you can call NS&I customer service and ask for replacement bonds. You can pick them up or request them through the post.
The maximum amount one person can have in Premium Bonds in the UK is £50,000. This includes the value of all their bonds. There is also a minimum amount of £25; this is how much one person must invest in bonds.
You can cash in your UK Premium Bonds after you win on the monthly interest draw. One of the ways you can obtain your prize is to get it paid into a UK bank account. Another option is to reinvest, putting your earnings back into Premium Bonds. If you opt for cashing in your bonds, you'll need to provide your holder's number and bank account details wherever you choose to do the transaction.
You can check your old UK Premium Bonds on the official NS&I site. Log in to your online account and look for your holder's number; all the Premium Bonds you've previously purchased will be grouped under this number. Alternatively, you can call the NS&I or request your records through the post.
The platform to use to invest in Premium Bonds is the official NS&I site. There, you'll find all the information you need about how to qualify, submit your request for obtaining bonds and make your purchase.
Premium Bonds in the UK promise a return that ranges anywhere from £25 to £1 million every month. However, bear in mind that this is only a potential winning and that there is a significant chance that you won't win anything in the monthly investment draw.
Anyone over the age of 16 can purchase UK Premium Bonds. Parents, grandparents and legal guardians can also invest in bonds on behalf of children aged under 16.
As of mid-May 2023, there are more than 120 billion Premium Bonds available in the UK, each valued at £1. From the eligible bonds, each person can purchase and own bonds up to £50,000 in value.
It depends on your willingness to risk your interest. The money you put in remains safe; it's the interest that varies. Generally, if you have a stable income and disposable money that you're willing to put at risk, it can be worth it.
Final Thoughts
Premium Bonds are a government-backed option for investment. However, it is questionable how much return they will provide. For this reason, you should consider whether they're the right option for you based on your needs and preferences.
Whether you're looking for stable income, guaranteed returns, a chance to win a tax-free cash prize or to invest for someone under your guardianship are all determining factors when opting for or against Premium Bonds.
If you decide to buy Premium Bonds UK, you'll be able to do so by registering on the NS&I website, placing a phone call or requesting them by post.
WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal capital.
