Premium Bonds

If you hold premiums bonds from National Savings (www.nsandi.com) you have a chance each month to win up to £1 million tax-free. Strictly speaking, premium bonds are not investments, they are a lottery. They work like this: you buy as many premium bonds (each worth £1) as you wish, and your bonds are entered each month into a prize draw. You don't earn interest on your bonds, but you do have the opportunity to win either the £1 million top prize, or one of hundreds of thousands of other tax-free cash prizes ranging from £50 up to £100,000.

You can invest a minimum of £100 in multiples of £10, up to a total of £30,000, in premium bonds. Although you do have a chance to win the big prize, you could also end up earning very little on this investment compared to the money you could receive from a top-rate deposit account.

The advantage is that all the potential prize money is tax-free, so you don't need to declare any of it on your tax return to the Inland Revenue. (www.inlandrevenue.gov.uk)

The draw takes place on the first day of every month when a computer known as ERNIE (Electronic Random Number Indicator Equipment) generates the winning numbers. You need to have held your bonds for a calendar month before they qualify to win you any prizes.

 

National Savings says that the current odds for someone who invested the maximum £30,000 a year means that you could expect to receive 12 tax-free prizes a year. But of course there is no guarantee, although they do give you the chance to have a flutter without losing any of your original capital in the process. You can buy them from a Post Office or download an online application form at (www.nsandi.com).

Premium Bonds do not risk your capital but there is no guaranteed growth. For higher risk investments with potentially greater returns see our guides to stock market investments.

www.Investments.co.uk is the definitive guide to making the most of your money. You can also visit us at www.pensions.co.uk to help you plan a financially secure retirement.

 

UK Investments - Financial, Property & Other Investments - 1998-2008

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