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Are Premium Bonds A Good UK Investment
Discussion article on buying UK Premium Bonds as an investment with advantages and disadvantages with our example of winnings
National Savings Premium Bonds are purchased from The Post Office, at the National Savings and Investments website, by telephone or via the mail using their
application forms available online or at a local Post Office. They can be purchased in multiples of £10 up to a maximum of holding level of £30,000 per person.
Each purchase must be for a minimum of £100 though, or £50 by monthly direct debit or standing order. Each person gets a unique holder's number which is a 9, 10 or 11
digit and letter number and references any transactions, purchases, winnings, unclaimed premium bond prizes etc and should be kept in a safe place and quoted on any
Once purchased they will skip one month's draw and then be entered into each draw until the owner cashes them in. Our tip when buying premium bonds is to buy
them at the end of the month so that your money stays in your bank or building society for an extra few weeks earning interest. If you choose to have any winnings
paid out to you as more premium bonds investment then they do not skip a month and go straight into the next month's draw. There is more written about this further
below this article.
The numbers are drawn by a computer called ERNIE in Blackpool. ERNIE means Electronic Random Number Indicator Equipment and each is
drawn completely at random.
You must be aged over 16 years to buy them, though parents and grandparents can buy them as gifts to children and grandchildren.
Premium Bond Prizes
The top monthly premium bond prize is £1 million and this is tax free. There were two £1 million prizes each month in the draw though this changed to one £1 million winner from April
2009 as a result perhaps of the recession and credit crunch. Instead this £1 million was given over to over one million £25 prizes for investors which changes the question
Are Premium Bonds A Good UK Investment? Though your chances of winning the top prize has been reduced your chances of winning more £25 is greater. Find Extra Work have seen an increase in the number of smaller cheques we receive, which soon adds up when you total all we receive each month.
All prizes are tax free. So depending on how often you win depends on whether you think premium bonds are a good UK investment. Each bond has every real chance of winning this top prize. Every £1 bond is entered into each monthly draw until cashed in.
Others are: £100,000, £50,000, £25,000, £10,000, £5000, £1000, £500, £100, £50 and £25. Each value has a set number of prizes. So for example in
December 2012 there were 4 winners who each won £100,000, 17 winners who each won £25,000, 88 winners who each won £5000, 3201 winners who each won £500,
33,586 winners who each won £100 and 1,700,968 winners who each won £25.
To answer the question is it worth investing in UK premium bonds read this article to make your own mind up. We at findextrawork love them because we have won many times
and shall describe examples of our premium bonds winnings and what level of savings we had to achieve them.
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Advantages of Premium Bonds
The major advantage is that you could win a large prize and many shrewd investors will invest in them in the hope of winning the
large £1 million prize and along the way they often win the smaller ones. For example our family invest at different times of the year and cash them
in to make purchases, pay bills etc. During the time of owning them we have won £25, £50, £100, £500 and £1000. Each month one of the family wins at least
£50 and it is more usual for us all to win several of the smaller ones. Once or twice a year we win a larger one of £500 or £1000.
They can be cashed in at any time and the full value of the redemption will be given to you. There are no penalty clauses for cashing them in and there is no
minimum length that you must keep them, though newly purchased ones cannot be cashed in for one month to allow the NS&I time to process your order and deliver your
Winnings are free from UK Income Tax and Capital Gains Tax.
NS&I will keep the personnel information of all their winners confidential. So no need to worry about getting begging letters as happens to many national lottery winners. NS&I will never reveal your details, not even the identity of the £1 million winners. They do reveal the County of the winner and the value of the winner's holdings and the value of the winning number. This information cannot identify a premium bond winner.
It is fun! We love the excitement of checking the online checker at their website each month. All you have to do is enter your unique holder's number into the search box and they will display any winnings. This normally goes live after the third working day of the month. Even the smaller £25 is celebrated in our house! The checker will also show previous month's winnings.
If this has not answered your questions or you need some more advice then please e-mail me. I would also welcome any advice to increase the information to make it more useful to others. I would also
appreciate it if you were to send our link to your friends, forums and websites.
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How To Cash In Premium Bonds
The easiest way to cash in premium bonds is by obtaining form NS&I 303 and a pre paid pink envelope (NS&I 350). It takes only a few minutes
to fill out the form and you must remember to include the certificates that you wish to cash in. It normally takes about ten working days to have the
money paid to you as a cheque or paid into a bank account. Tips are to cash in after the 1st of the month if you can because your bonds are in for one last draw
and you could win. Our other tip is to include your bank details on the form, rather than request cheque payment. By including your bank details you will get the money paid
in much quicker and it is far safer. We have had our repayment paid into our bank account in a record three days and normally have them paid in within 7 working days. Their
employees are busier with redemptions at the beginning of the month because that is when most people cash their bonds. We find that when we cash them in after the first
week of the month we receive our money much quicker.
Premium Bond Winnings
The first time you get your premium bond winnings (after you have finished dancing round the room!) it will be in the form of a cheque. Winnings are sent out in the first three weeks of the month with higher winnings sent out first. Our smaller wins of £50 and £100 have always been received around the 10th of the month.
In the same envelope as the cheque is a small blue form which can be filled out to request that any future winnings be made by an
instant purchase in more. This then entitles those bought this way to go straight into the next monthly draw, rather than having to wait a full
month before going into the draw. If you are investing long term then this could be worth considering to save you the temptation of
cashing the cheque and spending the cash. Re-investments can build up to a nice nest egg and raise your financial portfolio. If you choose this option then
any winnings that take you over your personnel allowance will be paid as a cheque payment. If you win over £20,000 then NS&I will
contact you to ask if you would like cheque payment or re-investment in more or other products. So in this instance you have
the pleasure of deciding to save for your future or treating you and the family to a holiday, car or other treats!
If you do choose re-investment as the option for future winnings you will receive a certificate to the value of your prize to keep with your others in a safe place.
Premium Bond Winners
The £1 million monthly premium bond winners will not get their cheque sent. Instead it is the job of one employee at the National Savings and Investments to
personally visit this lucky winner to hand over the cheque, pick them off the floor, calm them down, make a cup of tea and
congratulate him or her. I think there is the option of having free financial advice and general money advice to help him or her cope with this
sudden life change win. The dream of having a knock on the door on the 1st of the month makes it more exciting for us! We always stay in on the
1st just in case! The person who delivers the £1 million winning cheque is called Agent Million.
We can't think of any disadvantages. Even if interest rates go up so that those who invest their money in banks and building societies benefit, so too do investors because the prize values are always dependent
on current interest rates to make investing in premium bonds worthwhile. So for example the January 2013 percentage rate for the fund prizes is 1.5% tax free.
Even if you loose them, they get damaged or stolen the NS&I can trace and replace them using your unique holder's number, so that isn't even a
disadvantage. They are not a scam - we just can't think of any cons. We see premium bonds as a good UK investment because we have had many wins over the years.
Maximum Premium Bond Holding
The odds of winning a premium bonds prize is about 24,000 to 1. So someone who has invested the maximum premium bond holding of £30,000 could win about 15 times a year.
The Readers Digest magazine estimated that someone who buys £100 of them has a 210 to 1 chance of winning a prize. The RD also estimated
that with a £100 holding there is a 179 million to 1 chance of winning the £1 million prize. In the same article the Reader's Digest interviewed Mr Justin Modray of
Bestinvest points who compared interest rates and considered higher rate taxpayers could get as much as a 6.67% return.
We have been saving with them for over 20 years. The first few years we had only a few hundred pounds and won nothing until we deposited a £2000 windfall from
another saving account. We won three £50 and one £100 in two years. When we found ourselves in between houses and were renting we wanted to invest the money we
gained from the sale of a house so we invested £20,000 so that we would have instant access to our savings to put a good deposit on a new house when we found
the right one. In that eighteen month period we won £50 a month consistently and two £100 and one £500. This gave us a tax free return of £1600 from a £20,000
investment for a year and a half. To get the same return we would have had to have about 5.3% net interest rate and probably have had to tie up our money for at least a year, if not longer.
These are given as an example of why we consider premium bonds to be a good UK investment. Some holders may win more, others less.
There is a degree of luck involved and some may say that the more of a holding a person has the more chances they have of winning. Whatever level you can
afford to make do give investing in premium bonds some consideration. Real people win and they are tax free and it is fun and safe.
Premium Bonds Ernie
We love premium bonds ERNIE, he sends us money each month! ERNIE was first made in 1957 and since then there has been four ERNIE computers. Together they have produced the numbers for over 110 million tax-free prizes which have been worth over £7 billion.
Each has been used for approximately 16 years.
The first ERNIE premium bond computer started work in 1957 using the signal noise created by a bank of neon gas tubes to pick numbers. ERNIE 1 was the size of a van
and was built by Sidney Broadhurst and his team at the Post Office Research Station.
The first would now take 52 days to finish the premium bond draw. ERNIE number 4 now takes about two and-a-half hours.
ERNIE 2 started work in 1972 and was a faster computer which was able to produce more numbers to cope with the increased purchases.
ERNIE 3 took over in 1988 and was much smaller, about the size of a home computer system. It took about five and a half hours to finish picking the winning premium bond numbers.
ERNIE 4 was introduced in 2004 to help cope with the new 11 digit variations and the high number of bonds now being fed into the National Savings computer system and the
higher amounts of prizes. ERNIE 4 can produce variations of all the styles of numbers such as the 8, 9, 10 or 11 digit variations. When compared to the first ERNIE computer
it was found to be 500 times faster. It was developed by LoicaCMG and generates a million numbers an hour. The first ERNIE could only generate 2000 numbers an hour.
ERNIE receives many birthday cards, letters of thanks and even letters asking him to pick the senders numbers! This was famously depicted in the BBC comedy sitcom Some
Mothers Do 'Ave 'Em which starred Michael Crawford as the bumbling Frank Spencer whose mother always sent the computer a Christmas card each year.
It produces about 2 million numbers each month but about half have to be rejected because the owners have cashed in their premium bonds or the numbers have not been allocated.
The computer generates winners totally at random and gives no preference to location, regions, old or new numbers. There are no scams though there are many misconceptions and urban myths surrounding them.
Each draw is also independently checked by the Government Actuary’s Department (GAD) using four methods of testing – Frequency, Serial, Poker and Correlation. GAD ensures that there are no set patterns to ensure that the draw has been completely random. A certificate is then issued by the Government Actuary’s Department to verify the randomness of the draw.
It is a common misconception that winners of the £1 million premium bond prize own the maximum holding of £30,000. People who own smaller amounts have just as much chance of
having their number pulled out by ERNIE, though people who own more will narrow the odds somewhat. As an example the £1 million winner in July 2004 owned just £17, bought in 1959 when people could buy them in multiples of £1.
They were started by the National Savings Bank after the Second World War to encourage British people to save money and to help the Government control inflation. They were launched
by then Chancellor of the Exchequer Harold Macmillan in November 1956 at Trafalgar Square,
London. The advertising tagline at the launch was Saving with a thrill.
Unclaimed Premium Bonds
Any unclaimed premium bonds are kept in reserve so that the winner can claim them at any time. There is no time limit to claiming and every effort is made to trace the
winners. There are about 500,000 unclaimed which are worth a total of £30m.
Sir Alan Sugar, a businessman, philanthropist and investor, filmed several premium bond and National Savings and Investments products in 2006. Sir Alan Sugar is best known as the owner of Amstrad and
appearing on BBC The Apprentice reality television show and is in the Sunday Times Rich List. Sir Alan Sugar donated his fee from the adverts to Great Ormond Street Hospital.
To celebrate the 50th anniversary there were two special draws. The first marked the 50th anniversary of their sale. There were
extra winners including 5 £1 million. The second anniversary draw was held on the 1st June 2007 where there was 5 £1 million winners
to celebrate the 50 year anniversary of the first draw (in those days when you purchased them they had to wait 6 months before being included
in the monthly draw).
There was a rush to buy Premium Bonds in April for the 50th birthday anniversary draw, so much so that over £1.3 billion more bonds were bought. Buyers were
hoping to win one of the five special £1 million jackpots. In comparison the October draw which had an extra £1 million prize attracted about £2.2 billion in extra sales.
This was the largest amount bought in any month. This was because customers wanted to be in the December 2006 and the June 2007 special draws.
Over 525,000 people bought their first one during the run up to the special 50th Anniversary Draws. This brought the total number of
customers to 23.7 million and over £36 billion invested.
There was £1.5 million to be won as well as the five £1 million for the June 2007 draw. The odds of winning one of the £1 million for someone with a holding of £100 was 71 million to 1 and the odds of winning the top prize with the maximum premium bonds holding of £30,000 was
236,000 to 1.
All five £1 million winners of the June 2007 50th anniversary draws lived in England. One of the lucky £1 million winners had only just bought their first ones in
November 2006. The winners of the June 2007 50th anniversary draw were from Nottingham with a total of £21910 (the value of the winning draw was £5000), East Sussex with a
total of £26850 (the value of the winning draw was £300), London Borough of Hammersmith and Fulham with a total of £30000 (the value of the winning draw was £5000), Tyne and
Wear with a total of £30000 (the value of the winning draw was £5000) and Kent with £25000 (the value of the winning draw was £5000), Four of the £1 Million Winners of the June 2007 50th Anniversary Draws had bought their winning numbers within the last four years whilst the other purchased the bonds in August 1998. Their ages were between 25 and over 65 years of age.
Four Agent Millions were trained to deliver the good news on the 1st June 2007.
To date there have been 188 £1million winners, 166 in England, 6 in Wales, 9 in Scotland, 6 in Northern Ireland and 1 who lived overseas.
There are over 23 million holders in the United Kingdom. Between them they hold £26 billion. Many are long term serious investors, others have the occasion purchase in the hope of winning a prize from ERNIE - each have a very real chance of winning a tax free prize which makes premium bonds a good UK investment.
So what happens to them when you die? Our understanding is that the value of your holding will form part of your estate which will be handled by your solicitor. These
would normally be cashed in by the executor and solicitor and distributed to the terms of your will. However National Savings will allow your estate to keep them for one year
and any prizes will be paid to your estate. This one year is probably in place to allow time for your will instructions to be acted upon and your estate distributed.
Something to consider when asking are premium bonds a good investment.
A record was introduced in January 2011 to make managing your account easier. This will be issued to holders
when they cash bonds in or buy more. It shows recent repayments, a summary of those held, useful contact telephone number and up to date terms and conditions.
New services introduced at the same time included being able to set an online or phone account which makes buying them easier and the ability to have winnings paid
directly to a bank account. With the new record there is now no need to keep large piles of certificates safe. All more reasons to say yes to the question Are
Premium Bonds A Good UK Investment.
Premium Bonds Calculator
Martin Lewis, the Money Saving Expert has created a premium bonds calculator at his website moneysavingexpert where each holder can add his or her amount of
holding and how long they project to keep them for in terms of years. This will then automatically predict how likely it is that the holder
will win and the values. It also gives percentages of likelihoods for each type of prize value. This free tool will also compare your likeliness of winning with other savings such as cash ISAs and savings accounts for tax and non tax payers as well as the virtual certainty of winning. Visit moneysavingexpert.com to use it.
For more information visit the official website at www.nsandi.com
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