When it comes to saving money, the age-old wisdom of ‘putting your money to work’ usually means investing in vehicles that generate interest or dividends over time.

However, there’s an unconventional yet intriguing savings option available to UK residents that defies this conventional wisdom – Premium Bonds. These financial instruments, offered by National Savings and Investments (NS&I) are a unique, risk-free way to save and potentially win substantial sums of money without earning interests.

How Premium Bonds Work

Premium Bonds are not your typical savings account. Instead of accruing interest, your invested money is entered into a monthly prize draw. Here’s how it works:

1. Bond Numbers: For every £1 you invest in Premium Bonds, you receive a unique Bond number. If you invest £100, you’ll have 100 unique Bond numbers, giving you 100 chances to win in each monthly draw.
2. Prize Draws: At the beginning of every month, NS&I holds two separate £1million jackpot draws, in addition to over a million other prizes ranging from £25 to £100,000. From August 2023, there are even more opportunities to win, with three times as many prizes worth from £100,000 to £5,000 on offer.
3. Investment Limits: There is a maximum holding of £50,000 for each investor, and the minimum investment to get started is just £25.

Before diving into Premium Bonds with the excitement of potentially winning big, it’s important to weigh up the pros and cons.

The Pros of Premium Bonds

Premium Bonds offer a risk-free way to potentially win substantial sums of money without risking your initial investment. Any prizes won are completely tax-free, making them a compelling option for those looking to maximise their returns.

The flexibility of Premium Bonds are a positive, as you can cash in all or part of your Premium Bonds at any time, with payments processed within eight working days, unless you choose to defer the payment until after the next prize draw.

The Cons of Premium Bonds

Although a risk-free chance of winning large sums of money sounds great, there are a few slight negatives to Premium Bonds.

The odds of winning a prize in the monthly draw are around 21,000 to 1 for every bond held; while the chance is still there, it is not guaranteed that you win a prize. Furthermore, unlike traditional savings accounts, Premium Bonds do not accrue interest. Instead, the interest rate is used to fund the monthly prize draw. Keep in mind that while your money remains safe, inflation can erode its real value over time.

Lastly, when you first buy Premium Bonds, you must wait one full month before being entered into the next draw. The monthly draw takes place at the start of the each month, so there can be a waiting period of anywhere from 5 to 8 weeks between your purchase date and your first chance to win.

If you’re intrigued by the idea of potentially winning tax-free prizes while keeping your initial investment safe, you can purchase Premium Bonds by visiting the NS&I website.

Premium Bonds should be seen as a fun and unconventional savings option rather than a guaranteed investment strategy. As with all financial matters, it is important to consider your personal financial position and goals before committing to any investments. Our award-winning team at McCrea offer a free no-obligation chat to discuss your future financial goals; why not get in touch today to find out how we can help?