Premium Bonds

In the UK, 72 billion premium bonds are held by 21 million savers who invested between £25 and £50,000 in the NS&I product. It is UK’s one of the biggest savings products where one can invest in anything from £25 to £50,000. Every month a draw is made and an estimated amount of £100 million is won by the bond holders. The top prize is of a £1 million jackpot. Any prize that a premium bond holder may receive comes free of UK Income Tax and Capital Gains. Anyone over the age of 16 can buy premium bonds for themselves or on the behalf of someone else such as their child or grandchild.

It allows putting money into the account and withdrawing whenever you wish, which is where the interest paid is pronounced by a monthly prize draw. Last year major changes were made in the structure of such bonds where the government allowed gifting feature where one can buy it for a child or grandchild, the met financing target was increased and minimum deposit was reduced to £25 from £100. Each person who buys £1 bonds has an equal chance of winning, meaning that the more bonds you buy the higher the chance of winning you have. 

The interest rate is their annual prize rate of 1.25%. This describes the ‘mean’, suggesting that for every £100 paid into bonds, an average of £1.25 per year is paid out, although in practise this is impossible as the lowest prize is £25. The premium bond probability calculator shows that if 25 people each invested £100, in order for one to win £25 or more would mean that the remaining 24 people would receive nothing. It is tax free and is risk free safe investment run by the National Savings and Investments Company (NS&I).