Premium Bonds: Everything you need to know

Do you really understand what they do for your money?

Premium bonds 60th birthday

The Premium Bonds winners are announced on a monthly basis, with two people each month being made millionaires.

But do you really understand how it works and what it means for your money?

See also: Are you owed a Premium Bond prize?

See also: Six things you might not know about Premium Bonds


Premium Bonds were introduced by Chancellor Harold Macmillan in 1956 to encourage people to save money after the war.

They are unusual because they don't pay a set rate of interest, instead holders win prizes when their bond numbers are drawn by a random number generator.

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What can you win?

Prizes range from £25 up to £1 million. Each month around two million people win the £25 prize and two people win the £1 million prize.

You need £100 to start off with Premium Bonds, and you can have a maximum holding of £50,000.

The more you invest, the more bond numbers you have, and therefore the more likely you are to win.

What's the incentive?

The payments are tax free and National Savings and Investment (NS&I) are owned by the government so your money is safe and payouts are not complicated. However, since the introduction of the Personal Savings Allowance basic-rate taxpayers can earn £1,000 interest before having to pay tax.

This means that you would have to have £77,000 in a top easy access cash savings account, paying 1.3% to go over it - this means the tax-free payouts are less of a draw.

Your money is also protected by the Financial Services Compensation Scheme, up to £75,000, if it's held by a British bank. So, if your savings are worth less than this it's best to go for a cash savings account first.

NS&I says that the average annual earning is 1.25% but many people also spend years winning nothing at all.

Here on AOL Money we publish the up to date Premium Bonds results on the first of every month, you can find all our news here.

If you already have Premium Bonds then you can keep up to date with your money at nsandi.com and you can keep an eye on your winnings on their prize checker.

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