What are premium bonds?

[Squigglesandgiggles]

Good evening all.
I have heard about them for years. But have no idea what they are, how much they cost, where to purchase etc.
can someone please explain simply what they are?
thank you

The max you can have in premium bonds is £50k so it’s more like 10 months of spending £5,000 on lottery tickets.

And statistically at the end of those 10 months you’d probably be better off from premium bonds than the lottery.

If you spent ten months buying £5k of lottery tickets a month, it's quite likely you'll have swapped £50k for a few hundred pounds at most.

However if you put £5k pm in premium bonds per month, after 10 months you have a 100% guaranteed chance of having £50k in bonds after 10 months even if you'd never won a penny in prizes, which statistically quite unlikely.

Surely people haven't misunderstood the difference this much?

Ok but I still don't believe I'm betting the whole of my savings every month with PB as the stake is guaranteed. so mathematically that makes no sense.

I think you're mixing apples and pears.

No you're not risking your initial stake which is why premium bonds are less risky. However every single £1 bond is in the "lottery" each month so statistically you have a far, far greater chance of winning on premium bonds even if the risk attached to that bet is much lower than the national lottery.

I sort of see what you're saying but to make your argument work you'd have to effectively convert you circa 4% average interest into £1 "bets" meaning that you'd have far fewer bets in the game. Actually with premium bonds if you have invested £30,000 you have 30,000 chances each month not the 100 chances you would have if you only looked at the premium bond average "interest" rate (at circa 4% on average)

Very glad this popped up, when Dmum passed away we found a letter that she'd bought DD £100 of bonds when she was a baby and hadn't mentioned it (or she had and I'd forgotten!). It's a faff to get them registered with DD now she's 19 but once that happens we hope there's some winnings there waiting for her!

If you have the holder's number, you can check whether you have any unclaimed prizes here: https://www.nsandi.com/prize-checker

Im not disputing what you are saying but I was always told that higher risk = higher reward so how PB can give you a higher reward with LOWER risk I'd be very interested to learn!

Risk vs reward is only a generalisation that applies to the population as a whole but there's always going to be variations over time and in the risk/reward for individuals. Because whether it's the lottery or PBs, there's a handful of big winners and millions of people who've lost most or all of their money (lottery) or done about the same or a bit worse compared with cash savings (PBs).

When you include investments, over time you'd normally do better than cash, but there's a risk that if you need the money at a time of uncertainty in the market, you could lose a significant amount of money.

If you drill down into the stats and graphs for PBs on the MSE website they've analysed in some detail.

I love saving in premium bonds because I don't play the lottery and I just love the little thrill each month of opening up the app to see if I've won anything! You can withdraw your money at any time so it isn't lost and you may win something.

In my experience I didn't regularly win prizes until I had more than £10k saved in premium bonds and even then it's not every month. Most people will earn more in interest via other savings accounts. But I still like having them. I save into my pension, my savings accounts and my stocks and shares ISA too so premium bonds feel like a little gamble (where I'm not gambling the money I've originally paid in.) I use mine at the moment as somewhere to save our home renovation fund money so it's sat separately from everything else but may get me a prize. I won £150 this month and it really gave me a boost.

It's not always the most financially savvy option but I like the fun of it.

The only risk you run with having, say, £50000 worth of PBs is that you aren't guaranteed any "interest", which you would have received if you put it in a savings account. However, what you do have is a high chance of winning prizes between £25 and £1m. Your bonds remain at the same value you purchased them for and you can take them out at any time. And the prizes are tax free.

But you don't need to buy your "chance" (or 'ticket' if you prefer) every month with PBonds, like you would the lottery.

If you think of it like a raffle book.
With the lottery, you buy £100 worth of tickets, and they are in the draw that week, then that is it. If you don't win that week, your tickets are thrown away and aren't in the draw the next week, or the next month. It is a one chance thing.

However if you buy £100 worth of PBonds today, they will be entered into the March draw, the April Draw, the May draw, etc etc through this year, next year and the next 50 years if you choose to leave them in there. You don't have to put your hand in your pocket to buy another chance of winning month after month, your 100 chances are still in the draw, and are put back in the draw if you prefer to think of each bond as being like a raffle ticket. In theory, you could have one bond and it could win for you every month without buying another.