National Savings Premium Bonds

If you are resident in the UK, there is a tax-free saving scheme that you can join where your investment has the potential to grow into millions of pounds. Does this sound too good to be true? Unlike many get-rich scams, the National Savings Premium Bonds is perfectly legitimate and is operated by the government.

National Savings and Investments offer Premium Bonds for sale as a way of raising a fund of money for the government to draw on. Individuals can purchase Pre£mium Bonds in multiples of £100 up to a maximum holding per individual of £30,000. If you purchase Bonds by monthly standing order, the minimum spend is £50. The bonds retain their face value for the life of the investment.

Premium Bonds are then entered, after the first full month of issue, into a monthly cash prize draw. This is the alternative to the standard practice that banks and building societies use, where savings accrue interest.

It is a simple concept that works well for everyone involved. The individual has a means of saving relatively small sums of money with very low risk. The government gains access to a pot of money that it does not need to negotiate interest payments either from it to the owners or by means of reward. The individuals also have the chance to win between £25 and £1 million every month on each Premium Bond they hold.

When Premium Bonds were introduced, they could be purchased in single unit amounts. The owner would be issued with a paper receipt and would be informed by postal mail in the event of winning a prize. Many individuals bought just 2 or 3 Premium Bonds at a time, often as gifts for new babies.

In the 1980s, the minimum purchase was raised to £10, and now stands at £100. Individuals are still informed of any prize winnings by postal mail, but they can also enter their details into the on-line search on the NS&I website to see if their Bonds have won any prizes.

Prizes can be claimed with no time limit after the draw has taken place. In reality, a significant number of prizes could remain unclaimed due to the death of the Bond holder, or the loss of paperwork and apathy on the part of the Bond holder to trace their Holder number. This is where the Premium Bond system benefits the government.

While the National Savings and Investments department will honour any prize claim, there is a portion of money that is never claimed and this acts as interest for the government. The longer the Premium Bond scheme continues, the greater the pot of unclaimed money becomes. This, along with all the investment money from the sale of Bonds, earns the government interest.

Even if all the unclaimed money was paid out today, the interest on that money would remain with the government, and would itself begin to earn interest. Premium Bonds are a safe bet for the government.

Premium Bonds are also a safe bet for the public. Unlike playing the National Lottery or an on-line bingo game, the initial investment with a Premium Bond is not lost. You can purchase £100 of Premium Bonds in 1990, and withdraw your £100 in 2015, with no penalties. During that time, your Bonds have been entered into a monthly prize draw. Everyone wins.

The simplicity of the scheme does mean that the number of Bond holders is very high. Without a significant number of Bonds, an individual is unlikely to see many wins in the monthly draws. However, each Bond number has the same chance of winning the top prize, and there is no weighting towards Bonds held for years over Bonds that were issued 3 months ago.

If you have a small amount of cash to invest, either for yourself or on behalf of someone else as a gift, Premium Bonds offer a very safe way of giving money for the future.