In today’s current economic climate, the word ‘Investment’ can scare even the most hardened economist. Nevertheless, all Premium Bonds have still remained popular with everyday citizens, with 40% of the population in June 2011 holding some bonds. However, how wise an investment is a Premium Bond, and what are the chances of gaining a return?
What are the prizes and how do they decide who wins?
Definition of Premium Bonds
Premium Bonds are bonds that the Government pays interest on at 1.5%. However, instead of returning that money to the owner of the Bond, it is instead entered into a prize draw along with the money from everyone’s Premium Bond’s interest.
Premium Saving Bonds
Therefore, Premium Saving Bonds are often referred to as Lottery Bonds and are provided by the Governments NS & I (National Savings and Investments) scheme. Each month, the computer hard drive ERNIE (Electronic Random Number Indicating Equipment) randomly selects numbers.
The cash prize
If these numbers correspond to a bond that you own, then you win a cash amount. As of 01.06.2011, the prizes range from £25 to £1,000,000. It is estimated that the prize fund on a monthly basis equates to £53 million pounds. This is split into three separate prizes categories:
- High Value prizes
- Medium Value prizes
- Low Value prizes. Just under 90% of the total prize fund makes up the Low Value prizes, which range from £25 to £100. Approximately, 5% of the prize fund is dedicated to the Medium Value category (£1,000 to £500) and the rest makes up the High Value category. Each month, one lucky bondholder will win the maximum prize of £1,000,000.
What are the chances of winning?
Chances of winning Unlike other similar gambles, such as the National Lottery, the odds of winning with Premium Bonds are reasonably high. As of 01.06.2011, if a Bondholder has over £10,000 bonds or more, up to the maximum amount of £30,000, then the likelihood of them winning a cash sum is estimated to be at 96%. However, since the average amount of bonds that holders have is around £1,200, the probability of an average person winning is reduced to 39%. Similarly, holding Bonds of £100 would reduce your chances to just over 4%. Therefore, the probability of winning is based on the amount of bonds that an individual holds, with more being better. However, considering that the cash equivalent of the bond is returned to the owner in its entirety upon request, the gain certainly appears to outweigh the risk!