Glossary: Premium bonds
A form of National Savings Certificate, premium bonds are effectively gilt-edged securities: you loan your money to the government and, in return, it pays you for the privilege with a guarantee it will return your capital at a specified date. Where premium bonds differ is that the interest payments (currently 1.5%) are pooled and paid out as prize money and you can get your cash back within a fortnight, with no risk. Launched by Chancellor of the Exchequer Harold Macmillan in his 1956 Budget, every single £1 unit has the same chance of winning and in May 2011, 1,772,482 winners (from a total draw of 42,539,589,993 eligible bond numbers) shared £53,174,500. The odds of winning are 24,000 to 1 and the maximum holding is £30,000 per person but it remains the only punt in which you can perpetually recycle your stake money.
National Savings Certificate
These are a UK government security issued under the National Loans Act 1968 by National Savings & Investments (NS&I), one of the largest savings organisations in the UK, with more than 26 million customers and almost £100bn invested. Backed by HM Treasury, NS&I markets a number of savings and investment products, such as index-linked savings certificates, premium bonds, income bonds and an ISA savings account. NS&I accounts for 16% of the UK’s national debt and is a relatively cheap way for the government borrow money rather than issue gilts.