Risks and advantages of premium bonds

The return on premium bonds is unpredictable. These are not recommended for salaried investors having regular income, seeking guaranteed risk-free returns on long-term savings. These bonds provide a kind of community gambling platform backed by the government. One has to be ready to sacrifice the regular returns to get one time big money.  The minimum cost of bond is £100 and one can hold up to £50,000 pound bonds.  The value for each bond is 1 pound and these bonds come with a number – for lucky draw.  The owner has full command over the money and the interest that includes the lottery money, which is tax free. These bonds can be bought individually for self or for a family member – children or grandchildren, but the buyer should attain 16 years age to be eligible to buy it.

The numbers generated in the bonds comes into the account of the account holder in one to two weeks time and rate of interest on bonds is up to 1.4 per cent.  The bond numbers are picked randomly – generated through electronic device. A person can win anything between 25 pounds to 1 million pounds in these lucky draws. These are very popular bonds where at least 23 million people invest in these bonds and in June 2018, about 1 million pounds were given in lucky draw.  

With new technological advancement, there are result checker apps, which can be downloaded to get the result instantly, or to know if you have won money– type the bond-holder-number in the website of NS&I, or you can send a letter to the organization with your details – name, birth date and holder number, to get information related to results. Currently, there are prizes with the organization that are left unclaimed. The data suggest about 1.4 million prize of worth £60 million have not been claimed.

Basically, these bonds offer independent investment portfolio that have monthly draws and the results are even-handed. The government, sometimes, increases the fund money to enhance chances of winning in these lotteries. Although, these schemes are tax-free and provide saver interest but there is no guarantee on getting the money. These are savings backed by the government schemes and rates can increase as the government prepares to make changes in rates on saving products.

Many investors in UK love to keep money in premium bonds as it promises to give huge in returns - is government backed safe investment but the chances of wining is slim in the lucky draws, and in case you do not win, the investment gives the rate of 1.4 per cent which is very small as compared to the money invested by the buyers of the bonds.  Further, getting selected in the lottery is next to impossible as there are 45 million bonds and if smaller prizes are removed from the lucky draw, the overall earnings from such investment is negligible.

The advantage of the investment is that it provides safety to your investment and there are no chances of losing money directly. But these are not advised for long term investing, as one can earn more in other options such as stocks and shares.   

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