Money Matters
In January, Ernie paid out the highestever number of Premium Bond prizes, together worth £1.66 million more than the previous month.
The bumper payout followed an improvement in the odds of a £1 bond winning any prize from 30,000 to one to 24,500 to one. The chance of a £1 bond winning £1 million is one in 36.31 million.
The odds of winning the Lotto jackpot are 45 million to one. The Lotto prize will be far higher but you have to keep buying tickets if you want to take a gamble every week.
Premium Bonds are a different commodity. Your original stake money goes into the draw month after month and you can get it back whenever you want. But does this make Premium Bonds worth considering as savings?
Premium Bonds are still a gamble, albeit a gamble with the advantage that your money is safe and, unlike most savings, the returns are tax-free.
Some readers will be quick to point out that they have held Premium Bonds for decades and never won a penny, but that is the essence of gambling: for every winner there are many more losers.
People who have won nothing from their bonds have various theories: that old bonds never win; you need to hold large chunks of bonds; and only people living in the South-east ever win.
None of these is true. Every bond issued has the same chance of winning every month, and Ernie truly is random. It is not a tombola that throws up bond
numbers from its store. Ernie produces completely random numbers, the majority of which do not match any existing bond number and are discarded. The process continues until Ernie has produced sufficient eligible numbers for the month.
Ernie is an acronym for Electronic Random Number Indicator Equipment and was invented by one of the Bletchley Park code-breakers. Over the years, the equipment has been updated with advancing technology to cope with the increasing number of bond-holders. If the original Ernie were still used, it would take over 100 days to complete one month’s draw. The latest Ernie takes five hours.
The prize fund interest rate has been improved to 1.4 per cent which means that, over a year, Ernie pays out 1.4 per cent of all the money held in Premium Bonds. The amount paid out each month is 0.116 per cent, which is one-twelfth of 1.4 per cent. The one thing you can be sure of is that you will not earn 1.4 per cent of your holding.
The exact number of prizes awarded each month depends on how much money is in the prize pool. There will always be two £1 million jackpot winners and the January draw gave an additional £50,000 prize, though the widest variation is in £25 prizes – in January Ernie awarded 2.9 million against 2.85 million in December.
The only way of improving your chances of winning is to buy more bonds. With a maximum £50,000 holding, your chances of winning £1 million improve to one in 726,279. But, if you prefer to be certain of earning interest on your money, or you want a monthly income, then choose a savings account.