Premium Bonds – Benefits & Disadvantages

Again in Could final yr I invested £1000 in Premium Bonds. Thus far, I’ve gained nothing and nonetheless have my £1000 price of bonds. My plan was to maintain them for 12 months earlier than re-assessing whether or not I ought to maintain them or not. This text will talk about the benefits and drawbacks of Premium Bonds as an funding car and conclude with my choice.

How They Work

Mainly, the month-to-month curiosity earned on each Premimum Bond is lumped collectively to make the prize fund. Then, a prize draw takes place utilizing a pc (ERNIE), which randomly picks the winners prize bond list.

The Particulars

To be eligible to buy Premium Bonds, you have to be no less than 16 years outdated and should make investments no less than £100 (or £50 through a daily standing order). Premium Bonds may be purchased as a present for a kid beneath 16 by their mother and father and grandparents. Essentially the most that may be invested in Premium Bonds is £30,000.

Premium Bonds are supplied by Nationwide Financial savings & Investments, that are backed by HM Treasury so your capital is extraordinarily protected.

The Numbers

Based on the Nationwide Financial savings & Investments web site, there are presently £26 Billion price of bonds issued. The rate of interest used within the calculation of the prize fund is three.60% (from February 2007), there are 1,417,836 prizes each month and the full prize fund values £102.1 Million.

Prizes are tax-free and vary between £50 and £1,000,000.

Likelihood of Profitable

Nationwide Financial savings & Investments state that the possibility of profitable (any) prize is one in 24’000 per bond. Utilizing the opposite figures on their web site (1’417’836 prizes and 26 billion bonds), I calculate that there’s a one in 18’338 likelihood of profitable one thing per bond though it is price noting that these figures could also be old-fashioned. Clearly they cannot replace the determine each time a bond is offered 🙂

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