What are premium bonds?

Premium bonds are an alternative way to save your money. It is all online and very simple to use making it accessible most people. What you have to do is go onto the NS&I website and buy premium bonds. Each bond is worth £1, and you can put as much money as you want however, it must be more then £25. But what happens once you have bought these bonds?

What happens when you buy premium bonds?

Once you’ve bought the bonds they are entered into a draw. The best way to describe this is like the lottery. Each one of your bonds has its own unique number and each month a set amount of numbers are chosen. The draw is done randomly and if you win you can win a set amount of money. This prize money can range from £25 to £1,000,000. It is also important to note that the more money you invest the higher chance of winning.

Positives

Alternatively, to the regular lottery, where if your number isn’t drawn you lose money, this doesn’t happen in this case. The amount of money you invest will never devalue; it can only ever increase in value.

At the time of writing interest rates are low, meaning in a regular savings account the bank adds a very minimal amount. However, with premium bonds you can win any amount from £25 to £1,000,000. Even if you win one draw worth £25, you will still gain more then you would from a regular savings account.

Negatives

The main issue is the fact that you aren’t guaranteed a win in the lottery. You could own the premium bonds for a year, continually adding to the value. However, you could never win on any draw so whilst you don’t lose anything you also don’t gain anything.

The other issue is the delay it takes to cash in on your money. If you have a regular savings account, you can transfer money over into your current account. This will be done immediately and its easy to do as well. However, with premium bonds you have to go online to their website and cash in. While this is simple enough to do there is a waiting period of two to five days. This can be rather annoying if you need the money quickly in order to pay for something.

Conclusion

In conclusion, premium bonds are easy to acquire and to set up on the website. Whilst there are a few little issues here and there, there are also far more benefits to it. This is why we believe that it is a viable alternative to a standard savings account.

To read more about other saving methods click here

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