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Premium UK Bond Investing Explained – Ultimate Guide

Are bonds a great investment? Investors should consider a variety of factors like the type of bond as well as what amount of interest that the bond pays and the length of the bond’s commitment.

Investors should also think about their tolerance for risk in relation to the possibility of default. This happens when the issuer of the bond does not pay the loan. The positive side is the fact that the federal government in the United Kingdom guarantees premium British bonds. They are a good investment for those who are who are nearing retirement, as well as younger investors who want a stable return.

The fares for buses in England to be cap by PS2 between January until March

They are debt instruments issued by governments and companies to fund capital. Investors purchase bonds by making the initial purchase of a specific amount, referred to as the principal. If the bond runs out or is due to mature and is also known as the date of maturity it is then returned in principal to investors. The bondholders usually receive a fixed monthly interest rate as a reward to their stake.

Make an investment in premium bonds specifically premium UK bonds. These are an ideal investment for those looking for a steady return.

At the current rate, Premium Bonds are exceedingly unlikely to beat inflation.

If your savings aren’t growing at the same rate as inflation is the case, then your savings are actually decreasing. If the yield of your investments is greater than inflation the savings are growing; however, if they are not your savings are declining.

The coronavirus virus epidemic led to the dramatic drop in inflation which led to an unheard of situation in which it was the Premium Bonds rates were more than inflation rates. However, the economic revival and the widespread supply chain interruptions have caused price increasesthat are now causing a dramatic increase in inflation rates.

With these rates increasing and this table, chances of beating inflation using Premium Bond victories are low regardless of how much you’ve saved.

However that, with savings rates that range between 1% and 3 percent, there’s no place to invest at a higher percentage than what is currently 9.9 percent. Yet, it is important to always aim to maximize the return you get from your investments.

How do Premium Bonds Work?

It is interesting that these bonds are often called lottery bonds tells us something about their operations. At first, buying premium bonds are similar to buying the lottery ticket. The benefit in premium bond over lottery is that the money is never lost. Every PS1 saved by the NS&I bond is paid back by bonds.

Premium bonds remain an investment option and can be a good way to save money, but they also offer the lottery to provide incentive. Additionally, there is no risk, as you could be able to get your money back at any time and winning or losing. There are many other benefits of investing your money into premium bonds. Before we discuss the advantages we’ll look at the basics that make premium bonds a good investment:

  • Premium bonds are only bought through NS&I.
  • You will be issued an unique bond number for each PS1 of savings you invest For instance that if you put in PS50 and receive 50 bonds numbers.
  • You must make a deposit of at minimum PS25
  • The maximum amount for investment is PS50,000 which is the maximum holding amount.
  • Every bond number is equally likely of winning. Therefore the more bonds you own, the higher your chances of winning.
  • When your newly purchased bonds are at minimum 1 month old they will be qualified for the monthly draw.
  • The cash rewards of monthly draws are tax-free.
  • You must be at least 16 or older to get premium bonds. However you are able to gift premium bonds to children younger than 16 as a present.

If you’re familiar with these fundamentals then you’ll be able to comprehend premium bonds.

How Much do Premium Bonds Pay in Interest?

Premium bonds don’t pay interest on savings. However, in June 2022 the amount that is paid out per year was 1.4 percent, based on the likelihood of winning an award. The rate has been 1.4% since December of 2020.

It is essential to note that for each PS1 million jackpot that there is numerous people who don’t have any winnings at all. therefore, while lucky winners might win 1.4 percent and more, an average person is likely to win little or absolutely nothing.

What is the Typical Return Rate on Premium Bonds?

Premium Bonds are not able to offer an interest rate similar to other savings options; rather they provide an average return.

The odds of getting the reward you’ve earned from an PS1 bond is 24,500/1 that is quite small. This is equivalent to an “prize rate” of 1.4 percent, which will begin at the end of June in 2022. (up from 1 percent prior to this).

But, there are two significant considerations in these calculations:

  1. Savings accounts with low interest would have been better even if you didn’t win any Premium Bond Awards.
  2. If you have more premium bonds you have the higher your chance of winning (this is not included in the 1.4 percent prize fund percentage, as it is an average for all)

How Likely are You to Win, and Who is Ernie?

Premium bonds work in the same way as the lottery in that you can be a winner or not even. At present, the odds of the probability of each PS1 bond number being winners are between 24,500 and 1.

Ernie is one of the components in the of the NS&I’s “Electronic Random Number Indicator Equipment,” determines the winners. Ernie is an electronic device that generates random numbers, which are evaluated against bond numbers that meet the requirements to determine the winners.

Prizes vary between PS25 up to PS1 millions monthly in jackpots. The prize pool is fluctuating each month. As shown in the chart below, the amount of awards fell in December of 2020, however it significantly increased in June 2022, which is consistent the rate of change in prize funds.


About 21 million Britons have premium Bonds However, their value for you will depend on your financial position.

The idea of investing your entire savings into Premium Bonds is not a good idea as it will not yield enough to keep up with the rate of inflation (unless you’re very lucky and hit an enormous jackpot).

I hope you find this article on UK premium bonds helpful.



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