Are Premium Bonds Good Investments By Manjit Biant

Many have asked me are Premium Bonds good investments? Here are my thoughts.

What are Premium Bonds?

These are bonds issued by NSANDI on behalf of the UK Government where you lend money to the government buy buying the bonds and in return you can redeem the bonds back any time. You do not earn any interest but for every bond you hold, will entitle you to be entered into a draw each month for cash prizes.

Premium Bonds were originally used to encourage British people to save at the end of the Second World War. Back then, owners of Premium Bond accounts would be entered into a monthly draw for the chance to win £1,000. (The Times)

Do Premium Bonds pay interest?

The answer is no. However each bond is entered into a monthly draw, they offer every month prizes starting from £25 to £1m tax free.

Is Investing in Premium Bonds Gambling?

No and yes. Premium Bonds are risk free and you can withdraw your money at any time. This is not like a lottery where you either win or lose based on luck. However instead of receiving interest you effectively forfeit that and gambling interest for a chance to win a prize. It is not gambling as you can get your money back unlike with a lottery ticket.

What is the likelihood of winning?

The odds of winning a prize each month is 1 in 21000 according to NS&I

Are there downsides to investing in Premium Bonds?

Yes – as no interest is earned you lose against inflation and opportunity lost interest in your investment. With interest in savings accounts at good rates you would need to win prizes to beat inflation or at least keep up with inflation. So be sure to consider this when investing in Premium Bonds.

Feel Good Factor

Premium bonds in some way offer a glimmer of hope in winning a big prize and changing your life. That feeling alone can be worth something and be priceless.

Some years ago, I knew someone who was depressed at work, and needed a mind shift to endure and even enjoy work. They decided to take out a £15000 loan and pay it back over 2 years in monthly payments. They worked out the monthly interest paid and worked out an average of 1 £25 prize every 2 months. Each month the person worked that was 1 months of equity being built up in the bonds and the potential to win the jackpot. In an instance it brought the mind shift, because now each month he worked was a chance to hit the £1m jackpot and 1 months of equity in bonds being built up. At any time, the bonds could be sold and the loan repaid leaving equity in bonds from the difference. They told me the joy of going to work and the spring in the step was worth every bit of interest paid on that loan. It is hard to put a price on hope and the feeling and mind set change that it brings.

What is a good way to invest in Premium Bonds?

I do not necessarily recommend taking a loan to invest in Premium Bonds with high interest rates and loss of interest on the investment, but I certainly advocate using it as a regular set and forget savings scheme.

I would recommend a min monthly standing order of £25, set it and forget it. You have a chance to win and also at a time when you may need cash you can withdraw from it any time.

Where to buy Premium Bonds?

https://www.nsandi.com/

Conclusion

I conclude Premium Bonds are a good investment. If you are very wealthy by all means, put the maximum in of £50000. But for the rest of us start a min monthly of £25 into the bonds. After 1 year that is £300 2 years £600 etc and each bond has a chance of winning the jackpot each month, that hope alone you cannot put a price on it.

Disclaimer: I am not a financial advisor and if you decide to invest in Premium Bonds, you do so on your own risk and decision.

Ref: Are NS&I Premium Bonds worth it? - Times Money Mentor (thetimes.com)