Premium bonds increasing in popularity

Published by Nathalie Bonney on 19 May 2011.
Last updated on 20 May 2011

More premium bonds have been sold in the last seven years alone than in the previous 48 years, according to figures from National Savings & Investments (NS&I).

Almost 87% of all existing premium bonds have been bought between 2000 and 2010.

NS&I, which sells the bonds, also reveals that around 87% of winners in its January 2011 draw had bought bonds in the last decade.

"Because of increased popularity and sales in recent years, it's no surprise that more of the winners are recent customers too," explains Carolyn Monchouguy, spokesperson for NS&I.

Equal chance

Despite there being more recent winners, NS&I stresses each purchased £1 bond has an equal chance of winning, due to the Electronic Random Number Indicator Equipment or Ernie. The odds of each individual bond number winning a prize are 24,000 to 1.

Monchouguy says a number of factors have contributed to premium bonds' surge in popularity: "The first £1 million prize was introduced in 1994, and then in 2003 the investment limit went up from £20,000 to £30,000. Then in 2006 it was our 50th anniversary and so there was a lot of publicity surrounding premium bonds."

In addition the minimum amount that can be held in bonds has risen to £100 (or £50 when bought through a monthly standing order), whereas in the past customers could hold much smaller amounts (the minimum investment was £10 up until 1989).  

NS&I's government backing has also given premium bonds a safe, if not staid, image.

Find out how much you could win with the premium bonds calculator from Moneysavingexpert.com

No guarantee

But despite the opportunity for investors to win big, there's no guarantee, and in March 2009 low interest rates resulted in NS&I pulling one of its two £1 million prizes.

Andrew Hagger, spokesperson for Moneynet, blames low interest rates on savings accounts for the resurgence of premium bonds: "The lower interest rates are, the more likely people are to go for premium bonds. Maybe if accounts were paying 6-7% our savings would look much healthier and there'd be fewer people opting for premium bonds."

He suggests putting a small amount into premium bonds only after spreading money between ISAs and fixed-interest products.

"Of course there's always the chance you could win, and some people are prepared to forego interest for the chance of winning a tax-free prize – but there's a much bigger chance you'll get nothing; at least with savings accounts you'll get a certain amount back in interest."

 

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