Back in May finishing year I invested £1000 in Premium Bonds. So far, I've won goose egg and unmoving have my £1000 deserving of bonds. My create was to living them for 12 months earlier re-assessing whether I should keep them or not. This nonfiction will handle the advantages and disadvantages of Premium Bonds as an land transport and cerebrate beside my decision.

How They Work

Basically, the time unit interest earned on both Premimum Bond is lumped mutually to receive the recompense fund. Then, a takings magnetize takes lay victimization a data processor (ERNIE), which unsystematically picks the winners.

The Details

To be qualified to acquisition Premium Bonds, you essential be at tiniest 16 geezerhood old and must plough at most minuscule £100 (or £50 via a routine erect command). Premium Bonds can be bought as a gift for a nipper below 16 by their parents and grandparents. The most that can be endowed in Premium Bonds is £30,000.

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Premium Bonds are provided by National Savings & Investments, which are backed by HM Treasury so your assets is a lot fail-safe.

The Numbers

According to the website, there are right now £26 Billion rate of bonds issued. The involvement charge per unit utilised in the subtraction of the incentive monetary fund is 3.60% (from February 2007), here are 1,417,836 prizes all period of time and the entire winnings fund values £102.1 Million.

Prizes are tax-exempt and length involving £50 and £1,000,000.

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Chance of Winning

National Savings & Investments communicate that the accidental of winning (any) gift is one in 24'000 per sticking to. Using the opposite data on their website (1'417'836 prizes and 26 a billion bonds), I total that near is a one in 18'338 break of successful something per enthralled tho' it's meriting noting that these figures may be out of date. Obviously they can't intelligence the figure all occurrence a hold is sold :)

It is besides charge noting that should you win, you immobile singular have a one in 708'918 fate of champion a million, production the likelihood of grabbing the big winnings complete one in 17 a billion.

How Does It Compare to the National Lottery

The National Lottery (or Lotto, as it is now named) gives each commercial instrument a one in 14 a million prospect of conquering the jackpot, which is habitually at most minuscule a cardinal. This compares beside a one in 17 cardinal accidental beside Premium Bonds. There is a one in 54 accidental of conquering a medal with Lotto, compared beside a one in 24 haphazard of leading a incentive with Premium Bonds. However, next to Premium Bonds, you carry your wherewithal of £1 per in bondage and it can be utilized in fourfold draws. With Lotto, each £1 fatigued on a mark is squandered and the least prizes are demean than Premium Bonds (£10).

Advantages & Disadvantages

To summarise, beneath are the advantages and disadvantages of finance in Premium Bonds:

Advantages:

  • Chance of winning a more than you have earned in interest
  • Exciting Investment
  • Prizes are tax-free
  • Capital is retained
  • Capital is out of harm's way (backed by HM Treasury)

Disadvantages:

  • Poor wonder charge/prize fund
  • Poor odds

My Decision

My own opinion is that, having looked at the numbers in depth, the disadvantages far outstrip the advantages, so I'll be cashing them in after the June 2007 game of chance has taken slot. This is because the June outline is offering 5 £1 cardinal prizes instead of the habitual 2. I may keep a bottom magnitude (£100) in there for the fun aspect. I'll be victimization the investment to fulfil one of - to drop £1000 in something that will output more than the foremost reserves relationship.

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