NS&I National Savings and Investments Premium Bonds are the most popular investment product in the UK. But are they worth putting your money in or should you put them into a regular savings account or even the stock market.
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When it comes to investing money, many individuals are often faced with the dilemma of choosing between various options. One such investment avenue that has gained significant popularity over the years is Premium Bonds. These bonds, issued by National Savings and Investments (NS&I), offer the chance to win tax-free prizes every month, making it an enticing option for many savers in the United Kingdom. However, the question remains: are Premium Bonds worth it? Let’s take a closer look.
For those unfamiliar with Premium Bonds, they are essentially a savings account backed by the UK government. Instead of earning interest on your money, you have the opportunity to win tax-free prizes, ranging from £25 to a jackpot prize of £1 million, in a monthly prize draw. The more bonds you hold, the higher your chances of winning.
So, let’s imagine you decide to invest £7000 in Premium Bonds. In this scenario, you are essentially buying 7000 individual £1 bonds, each with its unique number. Your odds of winning are directly proportional to the number of bonds you hold. Currently, the odds stand at 34,500 to 1, meaning there is a chance of winning for every £34,500 in bonds you own.
But what might £7000 actually win you? Well, with £7000 worth of Premium Bonds, you have a reasonable chance of securing some cash prizes. On average, the annual prize rate stands at 1%, indicating that over time, you can expect to win about 1% of your investment. In terms of raw numbers, this amounts to around £70 per year. Of course, this is just an estimate, and there is no guarantee you will win any prizes at all.
Critics argue that the low-interest rate environment, combined with the chances of winning nothing, make Premium Bonds less attractive compared to other investment options. For instance, a traditional savings account might offer a higher annual interest rate, ensuring a guaranteed return on your investment. Additionally, investing in stocks, bonds, or other financial instruments could potentially yield higher returns, although they come with a higher level of risk.
Nevertheless, Premium Bonds still have their appeal. The allure of potentially winning a substantial jackpot can be enticing to many. Moreover, the absence of tax on winnings is undeniably appealing, especially for higher-rate taxpayers. Premium Bonds also offer a level of security, as they are backed by the UK government, making them less susceptible to market fluctuations.
So, are Premium Bonds worth it? The answer largely depends on personal circumstances and preferences. If you value the excitement of the potential to win large sums of money and prioritize tax-free investments, Premium Bonds might be the right choice for you. However, if guaranteed returns or potentially higher investment gains are more important to you, exploring alternative investment options might be a wiser choice.
Ultimately, investing in Premium Bonds should be viewed as a form of entertainment as much as a financial investment. While you may not get rich with £7000 worth of bonds, the thrill of the possibility remains enticing for many. In the end, it’s up to each individual to assess their financial goals, risk tolerance, and desired outcomes to determine if Premium Bonds are a worthwhile investment.
I use premium bonds for my tax money…..as well as my day job my side hustles generate a tax bill of about £2500 per year. For me it’s a great option because the money is well out of sight, and I just pay my tax bill at the end of the year. I’m not bothered about the prizes, I’ve won a couple of £25 prizes over the time I’ve been doing it. Of course there is a tinny chance of winning a big prize but I’m not holding by breath of that happened lol.
if i deposit say £5000, after approx 5 years if i want to withdraw the £5000 will i be able to withdraw the full amount or will inflation affect the total of it, will it be less? thanks
But how does the chance of winning increase with more investments? Can you explain that?
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I won £100 in march, £125 in april, £125 in may
It’s funny I have never heard anyone talking about premium bonds
I personally don't think they are worth it. There are better investment opportunities out there. Despite this I have got some, just in case I hit the big jackpot! For me it is more of a 'fun' investment if there is such a thing. Sort of like a lottery ticket where you can get your ticket cost back at any point in the future if you need it.
Its attractive enough for my emergency fund too. With it being tax free and already being at my psa limits, recieving something occasionally is better than notuing.
Natwest is paying 6%, said "Your average investor" which is amazing, I have yet to check though.
Thank you so much . Am now learning about investment and ready to invest .
Great work Jubair. Almost time for the next draw
Yeah, premium bonds ain't worth it! I'm currently getting 3.71% of an instant access savings account, so it makes no sense to put money into this, right?