Why we all love Premium Bonds (2024)

FAQs

Why do you love premium bonds? ›

With Premium Bonds there is no risk to your capital – so the money you put in is totally safe – it is only the 'interest' that is a gamble. And as Premium Bonds are operated by NS&I which, rather than being a bank, is backed by the Treasury, this capital is as safe as it gets.

Premium bonds are less volatile

Higher coupons deliver more of the return sooner. One measure of the price volatility of a bond is its modified duration. The 2.5% par bond in our example would have a modified duration of 4.67 years, while the duration of the 3.5% premium bond would be 4.58 years.

You don't get a Premium Bond interest rate like you would have with most savings products, instead they have an average rate of return. For every £1 bond, the odds of you winning a prize are 21,000 to one, so pretty slim. This translates to a “prize rate” of 4.4% (previously 4.65%).

Instant access - You can withdraw your money at any time without having to wait or pay a penalty. Safe and secure - Premium bonds are authorised and regulated by the Treasury and backed by the government, so 100% of the money that you invest will be safe.

Bonds tend to be less volatile and less risky than stocks, and when held to maturity can offer more stable and consistent returns. Interest rates on bonds often tend to be higher than savings rates at banks, on CDs, or in money market accounts.

So as a general rule of thumb, if you are a higher or top-rate taxpayer, you have enough savings that you pay interest on it, and you're looking at putting a large amount in, they can be a pretty good bet.

Thousands of Premium Bond holders who opened their accounts more than two decades ago have not yet won a prize, Telegraph analysis has found. More than 460,000 savers invested in government-backed accounts 20 years ago. Of the accounts still open, 44,900 have yet to win even £25, according to NS&I figures.

Finally, Premium Bonds are government-backed, which makes them extra safe. Bank deposits are protected up to £85,000 by the Financial Services Compensation Scheme, meaning amounts above this level are not guaranteed in the event a provider goes bust. NS&I, as a government-backed service, does not carry this risk.

How to claim Premium Bonds after a death. The Executor can trace and claim Premium Bonds belonging to the deceased either online or by post. If applying by post, they must include a copy of the death certificate and the Will. If applying online, the Executor must complete a bereavement claim form.

Can you ever lose premium bonds? ›

There's no investment risk: Because Premium Bonds are government-backed there is no chance of losing your money. This used to be more of a selling point, but the Financial Services Compensation Scheme (FSCS) currently protect all UK savings accounts up to £85,000 per person, per institution the savings are held with.

Premium Bonds don't earn interest. Instead, there's an annual prize fund rate that funds a monthly prize draw for tax-free prizes. Remember that inflation can reduce the true value of your money over time. The rate is variable so we can change it up or down from time to time.

Launched in 1956, Premium Bonds are issued by NS&I and have been used by governments to raise funds. Unlike investments offering savers interest or a regular dividend income, Premium Bonds offer customers the chance to win between £25 and £1m tax-free in a monthly prize draw.

Investors buy bonds because: They provide a predictable income stream. Typically, bonds pay interest on a regular schedule, such as every six months.