YOURS (UK)

Premium bonds

Premium bonds are a national institutio­n and have proved a reliable way to save, but are they still a good investment?

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More than 21 million of us hold a staggering £63 billion-worth of Premium Bonds and just as fashion, politics and culture have moved with the times since 1956, so too have Premium Bonds. The maximum investment has risen from £500 to £50,000 and the top prize from £1,000 to two £1million monthly jackpots. Leaps in technology also mean you can find out instantly if you’ve won via a smartphone app and you can have prize money sent direct to your bank account via BACS. And while the first version of ERNIE (Electronic Random Number Indicating Equipment) ERNIE 1, would take more than 100 days to complete a draw, today’s ERNIE 4 takes just five hours. Premium Bonds are backed 100 per cent by the Treasury so are exceptiona­lly safe, but although your capital is guaranteed, there are no certaintie­s of a prize. Your chances of getting anything are a one in 30,000 chance per £1 bond. And if you’re hoping to scoop a £1m jackpot, the odds are tiny at one in 31,653,072,200. You can check the probabilit­y of winning using the MoneySavin­gExpert. com Premium Bonds calculator – for example, a £5,000 holding would expect to win roughly £50 over a year. Prizes are tax-free, making bonds especially valuable to higher and additional-rate taxpayers. Falls in interest rates have made Premium Bonds more attractive for savers. If your savings pay you virtually nothing, you may as well have Premium Bonds (minimum investment £100) where you might win prizes higher than the after-tax interest you would earn from a deposit account. When it comes to cashing them in, the proceeds are returned within five to ten days so they are a good temporary home for your cash. Bonds have always been a popular gift for grandchild­ren rather than stockmarke­t investment­s, but over an 18-year period the stockmarke­t will provide a much better return than cash deposits, so a stocks and shares Junior ISA will produce better results than Premium Bonds.

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

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