Premium Bonds prizes: everything you need to know

NS&I has once again revealed the latest results of its Premium Bonds draw, creating two millionaires overnight, with thousands more scooping a host of prizes.

The £1 million winners were officially announced as holders from central Bedfordshire and somewhere overseas, the first with a holding of £7,000 and the second with an investment of the maximum £50,000.

However, Premium Bonds holders will be disappointed to note that NS&I has cut its prize-fund rate "for the August draw and beyond", said MoneySavingExpert. The rate "already lagged behind interest rates on standard savings accounts", but has now been further slashed from 3.8% to 3.6%.

What are Premium Bonds?

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 £1 million tax-free in a monthly prize draw.

Winning Premium Bonds are drawn at the beginning of each month, using a random number generator nicknamed ERNIE (Electronic Random Number Indicator Equipment).

How to buy Premium Bonds

Savers must deposit a minimum of £25 and can put a maximum of £50,000 into the accounts. "With every entry you make, your chances of winning increase up to a maximum of £50,000 of investment," said Unbiased.co.uk, so "as the old adage goes, 'you've got to be in it, to win it'".

You can purchase Premium Bonds for yourself or for a child aged under 16 by phoning the NS&I customer helpline or on the NS&I website.

As part of the application, you will need to provide your address, date of birth, and bank account details. If applying for your own child, you will need to provide their date of birth, proof of identity, and address.

You can also buy Premium Bonds for someone else's child, but will need to nominate a parent or guardian to manage the account until the child is 16.

Applications can take seven to 10 days to process, and you may be asked to provide extra documents to prove identities.

How to withdraw Premium Bonds

Selling Premium Bonds is an easy process. They can be cashed in, either in full or in part, "at any time without penalty", said MoneyHelper. In fact, this can be done "straight away" for those who have an online account.

Alternatively, savers can download the NS&I's Premium Bonds cashing-in form, fill it out and post it to the address on the form.

Once Premium Bonds have been cashed in, "you can choose" what to do next with the money, said LawHive, whether this is putting it into a savings account or pursuing an investment opportunity.

What are the Premium Bonds prizes?

Prizes that can be won from saving into Premium Bonds vary, but many will have their eyes on the £1 million jackpot, which two people will win each month.

Prizes are split into "three value brands": higher, medium and lower, explained NS&I. Once the two lucky millionaires are decided, the company will then "allocate a percentage share of the monthly prize fund to each band".

The highest-value band prizes are worth £100,000, £50,000 and £5,000, the medium-value prizes are issued in amounts of £1,000 and £500 and, finally, the lowest-value prizes are £100, £50 and £25.

What are my chances of winning a Premium Bonds prize?

The "nearest thing Premium Bonds have to an interest rate", said MoneySavingExpert, is the annual prize rate. This rate is a benchmark of the "average" return investors get for their money – "though in reality, there's no guarantee you'll win anything".

The odds of winning any prize each month are 22,000 to one for every £1, and "each Bond has an equal chance of winning", said Saga Magazine. But when it comes to the chances of striking it lucky with a "larger, life-changing amount", these are "much smaller".

While a "lot of maths" is involved when it comes to calculating how the prize rate fund is split, what is important to note is that Premium Bonds holders may see the real value of their savings "diminish over time", said the magazine. The money "isn't going to be keeping up with inflation" unlike a traditional savings account that pays interest.

And because this is a lottery bond, "the fewer bonds you hold, the lower your chances of winning the jackpot", The Telegraph said.

How to check if I have won Premium Bonds

Each month, you will need to check if your bond holdings "have been successful", said The i Paper. To do so, holders can visit the NS&I website and enter their bond numbers into the prize checker. The "same information" is also available through the NS&I app for Apple and Android phones. To find out if they've "been lucky", holders can also ask their Alexa smart speaker.

To find out if you've "been lucky", holders can also ask their Alexa smartspeaker.

Do I have Premium Bonds? 

Millions of people hold Premium Bonds because of their long history and they have a reputation as the "nation's favourite savings product". But every year "thousands of Premium Bond winners" die without being able to make a claim, said The Telegraph.

New figures from NS&I showed "some £1.7 million" was inherited by surviving family members last year – after 11,000 people died before collecting their winnings.

Last year, £5 million worth of Premium Bonds winnings went unclaimed, and some of that could belong to you.

If you have not checked for old, lost Premium Bonds wins, "don't panic", said Moneyfacts, as "there is no time limit to collect the winnings". NS&I will "continue to hold the funds for you" until they track you down, or you highlight the issue to them.

Those who can "dig out" their holder number will find it "simple" to claim any Premium Bond prizes, the financial website continued. The holder number includes either nine or 10 digits, or eight digits and a letter.

Understandably, some individuals will not be able to find their number. In this circumstance, "you can phone NS&I on 0808 500 7007 or write and ask for a replacement bond record to be sent to you", Good Housekeeping explained. To better your chances, it is important to "give as much detail as you can", such as your previous addresses, and when and where the Premium Bonds were bought.

NS&I also operates a tracing service to track down Bonds.

Are Premium Bonds a good investment?

The prizes are tax-free, plus NS&I is backed by the Treasury, "so 100% of your money is safe", Which? said. By contrast, a maximum of £85,000 of money held in a savings account is protected by the Financial Services Compensation Scheme if a provider goes bust.

However, money held in savings accounts or an ISA will earn a rate of interest, but Premium Bonds will not. It's a lottery, so "there is a chance you could win nothing at all", the site continued. "And, as your savings won't be earning any interest, they will effectively lose value over time due to inflation".

Premium Bonds can "make sense" if you are a higher-rate taxpayer and have already used your £20,000 annual ISA allowance, said Investors' Chronicle, but they do now "pay less" than the top easy-access accounts on the market.

There are also alternatives to Premium Bonds that offer prizes rather than savings interest.

The chances of winning are relatively low. Premium Bonds are typically considered as a "middle-of-the-road" option, said ThisisMoney, and the "vast majority" of holders "won't be lucky at all". To achieve "average luck", holding a "decent amount" in Premium Bonds is key.

All the same, Premium Bonds may be attractive to people who do not want to put their cash in a fixed-term savings account or take the more risky route of investing in the stock market. You can withdraw cash held in Premium Bonds at any time without penalties.

But ultimately, saving with Premium Bonds is "all about your mentality", added MoneySavingExpert. As they "protect your cash", even if returns are negligible, investing a small amount could be worthwhile, that is, as long as "you're willing to take the gamble" on the odds.