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How to Buy Premium Bonds

At its core, a premium bond is not just an investment but a chance to win tax-free prizes, ranging from smaller amounts to a staggering million pounds. Managed by the National Savings and Investment (NS&I), these bonds have captivated the imaginations of millions, but what exactly are they, and why have they garnered such widespread appeal?

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What are Premium Bonds?

Premium bonds stand distinct from other traditional investment products. Unlike a typical savings account or a fixed deposit, premium bonds don’t pay interest.

Instead, they offer holders a chance to win tax-free cash prizes through a monthly prize draw. These draws are operated by NS&I and have been an integral part of the British investment landscape since the 1950s.

With every bond purchased, you’re essentially buying a separate and equal chance to win in the monthly draws. The more bonds you hold, the greater your chances of winning. This unique blend of investment and lottery has made premium bonds an enticing proposition for many.

Premium Bonds vs. Traditional Savings Accounts

When evaluating investment options, it’s essential to understand the key differences and potential benefits each offers. Traditional savings accounts provide a guaranteed return in the form of interest. On the other hand, premium bonds, while not paying interest, entice with the potential of winning tax-free prizes.

Traditional Savings Accounts:

  • Offer a fixed or variable interest rate.

  • Interest earned might be subject to UK income tax.

  • Generally considered a low-risk investment.

  • Ensure a predictable and regular income.

Premium Bonds:

  • Do not pay interest.

  • Monthly prize draws offer the opportunity for tax-free cash prizes.

  • The amount invested remains secure with NS&I.

  • Winning chances are proportional to the number of bonds held.

Deciding between the two hinges on individual financial goals. If you seek guaranteed returns, a savings account might be more suitable. However, if you’re intrigued by the possibility of winning tax-free cash while keeping your capital intact, premium bonds might just be your ticket.

Tax Advantages of Premium Bonds

Taxation is a significant consideration for any investment decision. One of the standout features of premium bonds is the tax benefits they offer, making them a coveted choice for many investors.

Tax-Free Prizes: Any prize money won through premium bonds is entirely tax-free. This means that whether you win a small amount or the top prize, you won’t have to pay any UK income tax on the winnings.

Comparison with Traditional Interest: In traditional savings accounts, the interest earned may be liable for tax, depending on local regulations and individual tax brackets. This makes the tax-free prizes from premium bonds even more attractive.

Capital Gains Tax Implication: It’s essential to note that premium bonds do not produce any capital gains since there’s no appreciation in the bond’s value. Thus, bondholders don’t have to worry about capital gains tax implications.

Contribution to Tax Planning: For those keen on efficient tax planning, incorporating premium bonds into their portfolio can be a smart move. Not only do they offer a potential tax-free windfall, but they also pose no tax liability on the original investment.

In conclusion, while the chance to win tax-free prizes is enticing, understanding the tax implications, or lack thereof, can help in making an informed investment decision.

The Monthly Prize Draw: A Closer Look

The monthly prize draw is the heartbeat of premium bonds. It’s the event that every bondholder eagerly awaits, hoping their bond numbers align with fortune.

How Does it Work? Every month, the electronic random number indicator equipment, affectionately known as ‘ERNIE’, selects eligible bond numbers at random. Each bond, regardless of when or how it was purchased, has an equal chance of being selected.

Range of Prizes: Prizes range from as little as £25 to the much-coveted £1 million jackpot, often delivered in person by the mysterious ‘Agent Million’. There’s a diverse prize fund rate that dictates the number and value of prizes distributed each month.

Frequency and Timing: The draws occur monthly, ensuring bondholders have multiple chances throughout the year to clinch a prize. Results are usually made available on the NS&I website and the prize checker app shortly after the draw.

Chances of Winning: The odds of winning are determined by the total number of bonds in circulation and the amount set aside for the prize fund. It’s essential to remember that while holding more bonds increases the chances of winning, it doesn’t guarantee a win.

In essence, the monthly prize draw transforms the premium bonds experience from a mere investment to an exciting, anticipation-filled journey, where every month offers a new opportunity to win tax-free cash prizes.

How to Buy Premium Bonds

Stepping into the world of premium bonds is a straightforward process, made even simpler with advancements in technology. Here’s a step-by-step guide on acquiring these bonds:

Determine Eligibility: First and foremost, ensure you’re eligible. Typically, anyone aged 16 or over can buy premium bonds. They can also be bought for children by parents, grandparents, and even great grandparents.

Online Purchase:

  1. Visit the official NS&I website.

  2. Navigate to the ‘Buy Premium Bonds’ section.

  3. Complete the online application form, providing necessary details such as your bank account information.

  4. Choose your payment method – be it bank transfer, debit card, or others.

  5. Confirm the purchase and receive your bond number.

Physical Application: For those less tech-savvy or who prefer traditional methods:

  1. Collect an application form from a post office or order one from the NS&I.

  2. Fill in the required details.

  3. Submit the completed form along with the payment.

  4. Await your bond number in the post.

Investment Limits: Keep in mind that there’s a minimum and maximum limit on the investment. The minimum purchase is typically £25, while the maximum any one person can hold in premium bonds is set at a higher threshold, often revised by the NS&I.

After Purchase: Once you’ve made the purchase, it’s essential to safely store any documentation and note down your bond number. This number is your ticket to the monthly prize draws.

Investing in premium bonds is not just a financial decision but also a foray into a world of potential tax-free rewards, making the buying process all the more thrilling.

Managing Your Premium Bonds: Online Account & Prize Checker App

Owning premium bonds is just the beginning. Efficiently managing them enhances your experience and ensures you don’t miss out on any potential wins.

Setting Up an Online Account:

  1. Go to the NS&I website and choose the ‘Create an Account’ option.

  2. Input your bond holder’s number and other requested details.

  3. Create a secure password and choose security questions.

  4. With an online account, you can buy more premium bonds, check the monthly draw results, and manage any other NS&I investments you might have.

Using the Prize Checker App: For bondholders who like to check their luck on the go:

  1. Download the NS&I Prize Checker app from the respective app store.

  2. Log in using your holder’s number.

  3. The app will display the monthly draw results and notify you if you’ve won.

Automatic Reinvestment: Some bondholders choose to automatically reinvest their prize money to buy more premium bonds, increasing their chances in subsequent draws. This option can be easily set up through your online account.

Unclaimed Prizes: It’s essential to regularly check if you’ve won, as there are millions in unclaimed prizes. The online account and app make this process effortless, ensuring you never miss out.

In today’s digital age, managing your premium bonds has never been easier. With just a few clicks or taps, you can stay updated, invest more, and hopefully, celebrate your wins!

The Science Behind the Draws: Meet ERNIE

For many, the magic of premium bonds lies not just in the chance to win tax-free prizes but also in the technology powering the draws. ERNIE, which stands for Electronic Random Number Indicator Equipment, is the celebrated heart of this system.

A Glimpse into ERNIE’s History:

ERNIE has been a part of the premium bonds story since their inception in the 1950s. Over the years, the technology has evolved, with newer versions boasting faster and more sophisticated random number generation.

How Does ERNIE Work?

Employing cutting-edge technology, ERNIE generates random numbers, each corresponding to a bond. This ensures that every bond, regardless of when it was bought, has an equal chance in the monthly draws.

Trust in Transparency:

The National Savings and Investments (NS&I) ensures that ERNIE’s process remains impartial, giving no advantage to any bond over another. This transparency has fortified bondholders’ trust over the decades.

The Evolution of ERNIE:

From its early days as a large, room-sized machine to its current sleek and efficient iteration, ERNIE has constantly evolved. Each version is a testament to the blend of finance and technology, ensuring that the monthly prize draw remains exciting and fair for all.

For many bondholders, ERNIE is more than just a machine; it’s a symbol of hope, anticipation, and the serendipity that premium bonds bring to the investment world.

The Broader Landscape: Premium Bonds vs. Other Investment Products

In the wide world of investments, premium bonds occupy a unique niche. To make an informed decision, it’s essential to understand how they stack up against other investment products.

Interest & Returns:

  • Premium Bonds: They don’t pay interest in the traditional sense. Instead, the interest amount is pooled to fund the monthly prize draws. The chance of winning varies, and some months you might not win anything.

  • Savings Accounts: Traditional savings accounts provide a guaranteed return in the form of interest, but the rates might be lower than potential premium bond winnings.

  • Income Bonds: These offer a regular income through interest payments. The rate might fluctuate based on market conditions.

Tax Implications:

  • Premium Bonds: Winnings are tax-free.

  • Savings Accounts & Income Bonds: Interest might be subject to UK income tax, depending on individual circumstances and local regulations.

Access to Funds:

  • Premium Bonds: You can cash them in any time after a month of purchase. It’s flexible but remember that cashing in before a draw means you’re out of that draw.

  • Savings Accounts: Generally allow instant or short-notice access to funds.

  • Income Bonds: Might have a notice period or specific term before you can access the principal amount.

Risk Factor:

  • Premium Bonds: Your original investment is safe, even if you don’t win any prizes. The main risk is the opportunity cost of potentially higher returns elsewhere.

  • Savings & Income Bonds: They have their own risk profiles, often tied to market conditions or the financial health of the institution offering them.

In conclusion, while premium bonds offer a mix of excitement and potential tax-free rewards, it’s crucial to view them in the larger context of your overall financial goals and risk tolerance.


What are index linked savings certificates?

Index linked savings certificates are a type of savings product offered by NS&I that provides returns based on the inflation rate, ensuring that your money keeps up with rising prices.

How do I claim a premium bond prize?

To claim a premium bond prize, check the results using the prize checker app or log into your online account. If you’ve won, the prize money will be directly transferred to your bank account or sent as a cheque, depending on your preference.

Can I buy premium bonds online?

Yes, you can easily buy premium bonds online by visiting the NS&I website. Ensure you have the necessary details, like a debit card, to complete the application form.

What is the annual prize fund rate for premium bonds?

The annual prize fund rate for premium bonds is essentially the interest rate that determines the monthly prize money pool. It can vary and is announced regularly by NS&I.

Do I need to pay tax on the prize money from premium bonds?

No, you don’t need to pay tax on premium bond winnings. All prizes are tax-free, so you won’t need to mention them in your tax return.

Who are considered lucky bond holders?

Lucky bond holders are those who win prizes in the monthly prize draw. The odds of winning vary, and with each bond having a separate and equal chance, any bondholder can become a lucky winner.

Is there a limit to how long I can hold premium bonds?

No, there’s no fixed limit. You can hold premium bonds indefinitely, and they will remain eligible for the monthly draws.

What should I consider when buying premium bonds? When buying premium bonds, consider factors like your financial goals, understanding of how premium bonds work, and your risk tolerance.

How can I find more information about premium bonds?

To find comprehensive details about premium bonds, visit the NS&I website or consult the brochures and materials they provide.

How is the prize paid out if I win?

Prizes are either paid directly into your bank account, sent as a cheque, or can be automatically reinvested to buy more premium bonds, depending on your preference.

How can I win prizes with premium bonds?

Every premium bond has a separate and equal chance in the monthly draw. The more bonds you have, the higher your chances to win prizes.

How do I apply online for premium bonds?

Visit the NS&I website, navigate to the premium bonds section, and click on the “apply online” link. Follow the prompts and fill out the application form.

Are my winnings automatically reinvested?

By default, winnings are not automatically reinvested. However, you can set a preference in your online account to reinvest any winnings to buy more premium bonds.

What is the difference between buying bonds and buying premium bonds?

Buying bonds typically refers to purchasing fixed-income securities that pay interest. In contrast, buying premium bonds provides you with a chance to win tax-free prizes instead of earning regular interest.

Can legal guardians buy premium bonds for minors?

Yes, legal guardians, as well as parents and great grandparents, can buy premium bonds on behalf of those under 16 years of age.

What is the role of the Direct Saver account in NS&I?

The Direct Saver is a type of savings account offered by NS&I. It provides a straightforward way to save, with easy access to funds without penalties.

How are other investments different from premium bonds?

Other investments, like stocks or income bonds, might provide regular income or potential capital gains. In contrast, premium bonds offer a chance to win tax-free prizes without any guaranteed return on investment.

  Author Thomas Drury Seasoned finance professional with 10+ years' experience. Chartered status holder. Proficient in CFDs, ISAs, and crypto investing. Passionate about helping others achieve financial goals.


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