Premium Bonds are a type of savings product offered by National Savings and Investments (NS&I) in the UK. Instead of earning interest, Premium Bonds holders are entered into a monthly prize draw where they can win between £25 and £1 million tax-free. So how many prizes are actually given out each month? Let’s take a detailed look at the key facts and figures surrounding Premium Bonds prizes.
Key Stats
There are currently over 21 million Premium Bonds holders, with over £116 billion invested. The minimum investment is £25. Here are some quick headline stats on Premium Bonds prizes:
- Over 3 million prizes are paid out each month
- The total prize fund each month is £144 million
- The odds of each £1 Bond number winning are 34,500 to 1
- Just over 40% of Bonds win a prize each year
So in summary, well over 3 million prizes are given out each month to Premium Bonds holders, with total prize money of £144 million up for grabs. But how are the prizes distributed and what are the chances of winning the different amounts?
Prize Draw Structure
The Premium Bonds prize draw takes place each month, with prizes allocated using a random number generator. Here is how the prize structure works:
Prize Fund
The total prize fund each month is currently £144 million. This is made up of:
- 2 x £1 million jackpot prizes
- 5 x £100,000 prizes
- 10 x £50,000 prizes
- 22 x £25,000 prizes
- 50 x £10,000 prizes
- 100 x £5,000 prizes
- 200 x £1,000 prizes
- 1,600 x £500 prizes
- 10,000 x £100 prizes
- Over 1 million x £50 prizes
- Over 2 million x £25 prizes
So the majority of the 3 million+ prizes each month are for £25, £50 or £100. But there are still plenty of bigger prizes up for grabs too.
Odds of Winning
As mentioned above, the overall odds of each Bond number winning a prize are 34,500 to 1. This means if you hold the minimum £25 worth of Bonds (25 Bond numbers), your chance of winning something each month is approximately 1 in 1,380.
The odds of winning the different prize tiers are:
- £1 million jackpot – 1 in 107,500,000
- £100,000 – 1 in 24,500,000
- £50,000 – 1 in 12,250,000
- £25,000 – 1 in 5,625,000
- £10,000 – 1 in 2,250,000
- £5,000 – 1 in 1,125,000
- £1,000 – 1 in 450,000
- £500 – 1 in 56,250
- £100 – 1 in 7,000
- £50 – 1 in 1,400
- £25 – 1 in 700
As you can see, the chances of winning a smaller prize are considerably better than winning a jackpot, but it is still possible.
Factors Affecting Prizes
The number and value of Premium Bonds prizes each month is affected by a few different factors:
Total Fund Size
The total size of the Premium Bonds fund has an impact on the number and value of prizes. As the fund grows with more investments, more prize money can be paid out. For example, back in 1994 the fund was just £8.3 billion whereas now it is over £116 billion.
Interest Rates
Higher interest rates generally mean NS&I can afford to pay out higher value Premium Bonds prizes. So in times of low interest rates, the number of larger value prizes may be scaled back.
Popularity
If Premium Bonds become more popular, with a higher number of Bonds held, this also allows more total prizes to be paid out. So the overall chances of winning remain the same but more prizes can be given out.
Government Direction
As Premium Bonds are offered by the Government-backed NS&I, the prize fund can also be adjusted based on direction from the Government. For example to help encourage more saving or meet funding targets.
Historical Data
To get a better sense of how the number and distribution of Premium Bonds prizes has changed over time, here is some historical data on key prize draw statistics:
Total Monthly Prizes
| Year | Total Prizes |
|---|---|
| 1990 | 649,479 |
| 2000 | 2,024,941 |
| 2010 | 2,803,823 |
| 2020 | 3,164,128 |
This shows how the total number of Premium Bonds prizes each month has grown over time, from just under 650,000 back in 1990 to over 3 million today. The exponential growth is largely down to the expanding size of the fund over time.
Average Prize Size
| Year | Average Prize Size |
|---|---|
| 1990 | £48 |
| 2000 | £63 |
| 2010 | £46 |
| 2020 | £45 |
The average prize size peaked at £63 back in 2000, but has since stabilised at around £45-£50. This is likely due to more smaller value prizes being added, balanced against inflation reducing the real term value of prizes like £50 and £100.
Prize Fund Distribution
Looking at the percentage distribution of the prize funds across different prize tiers also shows some interesting trends:
| Prize Tier | 1990 | 2000 | 2010 | 2020 |
|---|---|---|---|---|
| Jackpot | 18.9% | 12.7% | 10.5% | 7.7% |
| £100k – £5k | 18.3% | 20.1% | 15.5% | 13.3% |
| £1k – £500 | 5.5% | 7.1% | 6.2% | 5.8% |
| £100 – £25 | 57.3% | 60.1% | 67.8% | 73.2% |
This shows that over time, a higher proportion of the prize money has been allocated to the smaller £25 – £500 prizes, rather than the jackpot and large prizes. This allows more people to win smaller amounts each month.
Factors Influencing Your Chances of Winning
While the overall odds of winning a Premium Bonds prize are fixed, there are some things you can do to potentially increase your chances:
Hold More Bonds
The more Bond numbers you hold, the greater your odds of landing a prize. With the minimum £25 giving you just 25 chances each month, holding more Bonds dramatically increases the probability.
Use the Full Allowance
You can hold up to £50,000 worth of Bonds per person. Holding the maximum allowance gives you the greatest chance for a payout.
Reinvest Your Winnings
Plow any winnings you receive back into buying more Bonds. This compounds your holdings over time.
Buy for Children
You can buy Bonds for children too, helping build their savings in a fun way. Their winnings will be tax-free as well.
So while you can’t improve the base odds of any one Bond number winning, you can optimize your overall chances by maximizing holdings.
Pros and Cons of Premium Bonds
If you’re considering investing in Premium Bonds, here is a quick rundown of some of the key pros and cons:
Pros
- Prizes are tax-free
- Fun and exciting compared to normal savings accounts
- Easy online management through NS&I website
- Can withdraw cash anytime without penalty
- Government-backed by NS&I
Cons
- No guaranteed return like interest
- Odds of winning anything substantial are low
- Prize fund rates not linked to interest rates
- Max holding limit per person
- No access for under 16s
So the thrill of the draw and tax-free perks need to be weighed up against the long odds and lack of proper interest.
How Are Prizes Paid Out?
Any prizes you win from Premium Bonds are paid out automatically, directly into your bank account:
Smaller Prizes
For prizes up to £5,000, these are paid out as soon as the draw takes place, so you will see the money in your account very quickly.
Larger Prizes
For bigger prizes of £5,000 and above, it takes a little longer for the money to reach you. This is because NS&I will contact you to confirm your details and validate the win. But you still typically receive payment within a week or two.
Reinvesting
You also have the option to reinvest any prizes straight back into Premium Bonds to augment your holdings. The money won’t go into your bank account but instead buys new Bonds in your name.
So you don’t need to do anything to claim prizes you win, big or small. As long as NS&I has your up-to-date bank details, you’ll automatically see any winnings deposited each month.
How To Improve Your Chances of Winning
While the odds of winning a Premium Bonds prize are fixed, there are still a few things you can do to optimize your chances:
Buy More Bonds
The more Bond numbers you hold, the greater your odds of landing a prize each month. With the minimum £25 only giving you 25 chances, bulk up your Bonds to boost probability.
Hold the Maximum Allowance
You can hold up to £50,000 worth of Premium Bonds per person. Filling your entire allowance gives you the greatest chance to win.
Reinvest Your Winnings
Plow any prizes you win back into buying more Bonds. This compounds your total holdings over time, improving your odds.
Buy for Children & Grandchildren
You can purchase Bonds for kids too in trust. With their own £50k allowance, this doubles your households chances.
Stay Invested Long-Term
The longer you hold Premium Bonds, the more draws you are entered into. This increases your historical probability of landing bigger prizes.
Use Prize Draw Checkers
Third party websites let you check if your Bonds have previously won. Use them to identify any consistently lucky Bond numbers.
While you can’t enhance the base odds, following these tips stacks the deck further in your favor.
What Are The Tax Implications?
One of the big attractions of Premium Bonds is that any prizes you win are completely tax-free. Here are some key tax considerations:
Income Tax
Prize winnings are not subject to UK income tax, so you get to keep the full amount. This contrasts with savings accounts where interest earned is taxable.
Capital Gains Tax
You don’t need to pay any capital gains tax on any money made from Premium Bonds prizes. This is because technically you are not making a capital gain, just winning a prize draw.
Inheritance Tax
Premium Bonds can normally be passed on free from inheritance tax if you die. As with other gifts made over 7 years before death, they are usually exempt.
Tax On Interest
No interest is earned on Premium Bonds, so you don’t need to pay any tax on interest accrued or received. Only prizes received are applicable.
This preferential tax treatment gives Premium Bonds an advantage over many other fixed income investments where tax eats into returns.
How Do Premium Bonds Stack Up Against Other Savings Accounts?
So how does the prize draw nature of Premium Bonds compare with returns from regular, interest-paying savings accounts? Here is a comparison on key factors:
Average Expected Return
The Premium Bonds prize fund currently equates to an effective tax-free interest rate of 1.4%. Normal easy-access and fixed-term savings accounts often pay higher interest, around 1.5% – 2.5% before tax.
Risk Profile
Premium Bonds offer no guaranteed return, with prizes based on luck. Savings accounts provide a fixed, predictable interest rate. So Bonds are higher risk.
Accessibility
Like some regular savings accounts, you can get your money out of Premium Bonds whenever you want penalty-free. But other fixed-term accounts limit access.
Tax Benefits
The tax-free nature of Premium Bonds prizes provides a significant advantage, bolstering effective return. Interest on normal savings is taxed.
Psychological Appeal
The fun, prize draw format of Bonds appeals more to some savers who don’t like the boring interest from traditional savings. But others prefer the certainty.
So Premium Bonds offer fun and tax advantages, but need to be weighed up against potentially higher but taxable fixed returns from normal savings accounts.
Conclusion
Over 3 million Premium Bonds prizes are paid out each month, valued at £144 million across all prize tiers. Your odds of winning per Bond are fixed, but can be improved by holding more. While normal savings accounts offer fixed interest rates, Premium Bonds provide exciting tax-free prizes for those willing to take a small gamble. Just be aware the headline jackpot odds are extremely long, with smaller prizes far more likely. But Premium Bonds remain a fun, popular way to save which can still occasionally deliver life-changing sums to lucky winners.
