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Your Money > Investments Articles > Premium Bonds
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By Emma Tyrrell
Fancy a flutter, without the risk of losing your cash? Your odds of winning the National Lottery Lotto jackpot are 930 times better, at just under 14 million to one, but if you don't win at Lotto you lose your stake (Doh!) With Premium Bonds it stays "invested" and available to win prizes every month. With average luck, your Premium Bonds should pay you prizes equivalent to 3.25 per cent. Because the prizes are tax-free, this is equivalent to 5.42 per cent for a higher-rate taxpayer and 4.06 per cent for a basic rate taxpayer. If you are a higher-rate taxpayer, this is a competitive rate, though it can be almost matched by some no notice internet savings accounts. Alliance & Leicester's Online Saver account, for example, pays 5.35 per cent interest, which is 3.21 per cent after tax. If you're a basic-rate taxpayer, it's pretty damn easy to beat that 4.06 per cent, as any trawl through the best buy savings accounts will show you. But the "rates" quoted by National Savings & Investments (NS&I), the Government-backed financial services organisation behind Premium Bonds, assume you have "average luck". If your luck is seriously pants, you could win zero, zip, zilch, with your investment gradually being nibbled away by inflation. On the other hand, if you're stocked up with four-leaf clovers, horseshoes and other lucky charms, who knows – you could win big, dwarfing the amount a savings account could have paid you. This possibility of winning mega-bucks is the appeal of Premium Bonds, explaining why 23 million of us now hold them. At some stage, we've all bought into the dream that we could be the ones getting a knock from "Agent Million" (I kid you not - that's what they call the lady who notifies jackpot winners.) Since April 1994, when the first £1 million jackpot was introduced, the amount invested in Premium Bonds has shot up from £4 billion to £26 billion, with the prize fund now around £72 million, nearly five times higher than in 1994. The number of prizes on offer has also nearly quintupled, to an estimated 1.1 million for the August draw. With prize values ranging from £50 to £100,000, the odds of a bond winning something (anything!) are around 23,636 to one. According to NS&I, a Premium bond holder with £5,000 invested and average luck should win a prize every five months. But hang on - I've had my Premium Bonds since I was a strip of a girl and I've never won anything! And I'm not alone. The postbags of personal finance sections are often stuffed with letters from folk moaning on about what a mouldy old swizz they think Premium Bonds are. They generally run something like this. "Dear Sir, I think Premium Bonds are a mouldy old swizz. I've had £10 worth of bonds for 30 years, and I've never won a penny. Yours grumpily, F Pugh (Mrs)" Well Mrs Fictional Pugh, I've got £10 worth as well, and I think we could be waiting a while for our prizes. Assuming we have average luck, NS&I says we should win a prize roughly every 200 years. Hurrah, just in time to buy my great-great-great-great-great-grandchildren a new space pod. Only if I live long enough to see it though, as bonds aren't transferable to other people. If, on the other hand I was gambling-mad-enough to up my stake to £1,000, the regularity of my wins (again assuming that elusive thing, average luck) would correspondingly quicken to once every two years. And if I really blew the house-keeping, and had the maximum £30,000 investment in Premium Bonds, I think I'd be a trifle miffed if I wasn't winning a prize at least every month. But then there are the lovely stories of small investors winning big, which keeps the flames of hope burning in the hearts of we stingy £10-ers. In July 1994, for example, a pensioner from Newham with 17 bonds bought in 1959 won the £1 million jackpot. It could be me… but it probably won't be, not for at least another 170-ish years anyway. Premium Bond facts
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