Are Premium Bonds Worth Your Time?
If you’re looking to start saving money, it’s likely you’ve already had your fill of various ISAs and interest rates on the market! You will have already heard of premium bonds, too, if you’ve done your research. Premium bonds currently provide one of the most popular ways to save your money in the UK. However, they don’t work like typical savings, leading to more and more people questioning their worth.
Based on your investment, you expect to make a minimal return every month with standard savings methods – such as ISAs. However, you could have invested a fortune with premium bonds without seeing a single return for years, maybe even longer. So, what is the overall appeal with them then?
Let’s take a closer look at what premium bonds are, how they work in practice, and whether or not they are actually worth your time and money.
What Are Premium Bonds?
Essentially, premium bonds are investment opportunities set up by National Savings and Investment, or NS&I.
Usually, when you invest in something – such as a bank account or trading portfolio – you expect a recurring and varying return, maybe once a month or every quarter.
However, with premium bonds, there is no regular return expected. Instead, there is a monthly draw to decide the interest amount you will receive – it’s rather like the lottery in this sense, only you get to keep the money you pay for your tickets.
You can buy bonds for £1 each time, and each £1 has as much chance as all other tickets of winning. The more bonds you actually have, of course, the more likely it is that you’ll win a prize in that monthly pull.
ERNIE (the Electronic Random Number Indicator Equipment) is the deciding tool used when it comes to the draw (which is done randomly) – therefore, you can be assured that these draws are always of a fair playing ground and above board.
As with most other investments, you can always take your money out of your savings from premium bonds whenever you are ready – there’s no risk on losing cash.
How Do Premium Bonds Work?
In order to have that chance of ‘winning’ on premium bonds, you’ll need to kick it all off by investing at least £25 of your cash. You can keep buying bonds to your heart’s content, but each participant has a maximum level of £50,000. For each £1 invested, you’ll get a number that is unique to you – and a unique chance to win a prize.
Prizes available to win through premium bonds are as large as £1,000,000 – but there are smaller prizes that are much ‘easier’ to win based on the odds. NS&I have made their odds a little somewhat fairer as of June 2022, you currently have a 24,500 to one chance of winning a prize per month.
You must own your bond for at least one month to qualify for a draw. Once the month is all finished, your bond will then participate in the draw to see who has won what/how much. A good thing to note is that your winnings are entirely tax-free, and all your investments are secure.
However, as mentioned, there is no regular return on your investments, and they can be affected by inflation – worth keeping in mind before you clear out your ISA!
How Do You Buy Premium Bonds?
Whether you want to buy premium bonds for yourself or as a gift for a loved one, you can easily buy them online at the NS&I website.
You will have to make that initial payment/investment of £25, after this you can then continue to buy bonds for a further £1 per bond.
You have to be at least 16 years old to buy bonds, too – if under the age of 16, then the bonds can be held in your name but overseen by your parent or guardian.
If you plan to buy bonds, it is wise to buy them during the last week of any given month. Meaning this way, they’ll be in the following month’s draw at the end of the month, too. That means that your money has the earliest possible chance of giving you a return!
Are Premium Bonds Worth It?
Premium bonds can be a fun way of investing, and there is always a chance that you will win a fortune in tax-free money!
However, the likelihood of this being this case is extremely rare – it is essential to understand where you will be putting your money. While your money will be safe from risk and loss, the chances of you actually getting any significant returns on the invested capital are negligible. 24,500 to one is still somewhat of a chance – but it’s a pretty slim one!
As you may know, many people buy premium bonds as presents for their children, grandchildren, etc. In that sense, it’s a really good option to utilise in order to leave something that could potentially be of a significant value for that someone you love. However, from the perspective of an investment, along with that hope of making great returns, premium bonds probably aren’t the best idea out there.
Premium bonds can be a little tricky to understand at first. Why would anyone want to invest money with no guaranteed returns and only a tiny chance of winning big?
The fact is that premium bonds do appear to be more about that ‘fun’ factor. If you win, you’re likely to win big – typically, a far more significant amount than you could earn in (more or less) the same amount of time with ISAs and other basic savings opportunities out there.
That being said, investing your money elsewhere is likely to generate more of a regular income. It’s simply a case of choosing a savings account with a reasonable level of interest, or diversifying your investment portfolio as much as possible.
Considering how safe these investments are, along with a little bit of fun thrown in, premium bonds could be the option that suits you best. We’d certainly advise you invest in bonds rather than the likes of Lotto games, thing is, your odds of getting your money back are much higher, and you’re not losing any money outright.
Consider premium bonds as a something that could be a potential outlet for your cash, however, ensure that you look at other ways to build your precious savings elsewhere.
Given the fact that premium bonds are seen as a longer-term investment, acquiring additional money for the short term will most probably need to be sourced elsewhere. Looking into some sort of side hustle/business venture would be a great way to pull some instant cash in.
If you can spare the money, you can start an online business these days from around £500 to £1000. You can apply now with LoanBird up to £15k, so, whatever your idea is, we’ll most probably have a lender to fund it.