Are premium bonds still worth having?

Premium bonds are a national treasure with more than 21 million of us holding a staggering £63 billion-worth. They have proved a savings’ stalwart celebrating their diamond anniversary last November. In their 60 years, the state-owned National Savings & Investments’ star product has seen 12 Prime Ministers, five UK Eurovision winners and over 8,000 Coronation Street episodes!

Bonds through the decades

Just as fashion, politics and culture have moved with the times since 1956, so too have the bonds with the maximum investment rising from £500 to £50,000 and the top prize from £1,000 to two £1m monthly jackpots. Leaps in technology have also meant you can find out if you’ve won instantly via a smartphone app rather than trawling through Ceefax. And while the first version of ERNIE (Electronic Random Number Indicating Equipment), ERNIE 1 would take over 100 days to complete a draw, today’s ERNIE 4 takes just five hours.

This sounds impressive but are premium bonds still worth your money today?

  • If you’re hoping for a cash prize…

A big plus is bonds are backed 100% by the Treasury so are exceptionally safe. However, although your capital is guaranteed, there are no certainties of a prize. In fact, your chances of getting anything are one in 26,000 chance per £1 bond. And if you’re hoping to scoop a £1m jackpot, the odds are tiny at 1 in 31,653,072,200. You can check the probability of your holding winning using the Premium Bonds calculator – for example, a £5,000 holding would expect to win roughly £50 over a year. But if you do win, the prize is tax free making bonds especially valuable to higher- and additional-rate taxpayers.

  • For your savings…

Ironically, the fall in interest rates has made premium bonds more attractive for savers. If your savings pay you virtually nothing, you may as well have premium bonds where you might win prizes higher than the after-tax interest you would earn from a deposit account. Premium bonds also have good access since when you cash them in, the proceeds are returned within 5 to 10 days so they are a good temporary home for your cash.

  • As a gift for children or grandchildren…

Bonds have always been a popular gift for children for those who don’t want to go for stockmarket investments. Again, the fun is your grandchild could win a prize and can withdraw the money. But over an 18-year period the stock market will provide a much better return than cash deposits, so the probability is, a stocks and shares Junior ISA will produce better results than premium bonds.

7 bond facts

  1. There are 1.3 million unclaimed prizes worth £53.9m with winners dating back over 50 years.
  2. Harold Macmillan introduced Premium Bonds in the Budget under the banner ‘saving with a thrill’.
  3. The first bond was bought by Alderman Sir Cuthbert Ackroyd, then Lord Mayor of London.
  4. Bletchley Park Cold War codebreaker Tom Flowers helped developed ERNIE.
  5. The smallest holding to win £1m is £17.
  6. 350 millionaires have been created since 1956.
  7. Agent Million visits the lucky jackpot winners. His or her identity is top secret!