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What are Premium Bonds and what are the odds of winning?

Premium Bonds offer holders the chance to win money in a monthly prize draw — but what are the real odds of winning?

National Savings and Investments (NS&I) Premium Bonds are government-backed savings you can put money into and withdraw when you want.

Unlike other investments, where investors earn interest or a regular dividend income, bonds are entered into a monthly prize draw where people can win between £25 and £1m. The chances of all bonds winning are the same, regardless of when or where they were bought.

Savers buy £1 bonds and each has an equal chance of winning, so the more you buy, the higher your chances.

The closest thing Premium Bonds have to an interest rate is their annual prize rate, which stands at 4.4%. This means that for every £100 invested, £4.40 in prizes are awarded each year.

Read more: Were you a winner in the September 2024 Premium Bonds draw?

The rate is variable and can change depending on factors such as when the Bank of England base rate changes or when rates in the general savings market change.

The interest rate describes the "average" payout, but it is just a "vague watermark", according to moneysavingexpert.com.

The top prize is £1m and the lowest is £25 and all prizes are tax-free.

The minimum purchase amount is £25 for one-off purchases and monthly standing orders and the maximum amount you can hold is £50,000.

Every month the winners are picked by an audited random number generator and prizes do not expire, meaning you can claim as far back as the original 1957 draw.

The odds of any Premium Bonds winning a prize in a monthly prize draw are one in 21,000, according to NS&I.

Savers with £1,000 in Premium Bonds would have to wait almost 3,500 years for a 50/50 chance of winning the same amount they put in, according to data scientist Andrew Zelin, who analysed the figures on behalf of the Family Building Society.

Read more: How to choose between saving and investing your money

To have a 50/50 chance of winning even £50, a saver who put in £1,000 would have to wait more than 200 years.

To have an equal chance of winning £1m, someone with £1,000 invested would have to wait 3.2 million years.

The same investor would have to wait two years for a 50-50 chance of pocketing just £25 or 3,466 years for the same shot at £1,000 or 119,256 years for a £10,000 prize.

Savers with the maximum £50,000 stake would still have to wait over 60 years for an even chance of winning £1,000 or 2,385 years for £10,000 and 64,398 years for the top prize of £1m.

These are new fixed-term Issues of NS&I's Guaranteed Growth Bonds and Guaranteed Income Bonds.

These are savings accounts that offer a guaranteed interest rate, fixed over two-, three- or five-years. You can invest from £500 to £1m in each Issue.

This can be an attractive option for some because NS&I is a backed by the Treasury so your money is protected, however much you deposit across the bank. Other institutions have deposits up to £85,000 guaranteed by the Financial Services Compensation Scheme.

Read more: Best UK savings accounts offering above inflation rates

NS&I has cut the rate on its two-year growth bond from 4.6% to 4.25%. The three-year option is down from 4.35% to 4%, and the five-year bond has been cut from 4.1% to 3.9%.

The two-year income bond has fallen from 4.5% to 4.17%, the three-year income bond from 4.26% to 3.93% and the five-year bond from 4.02% to 3.83%.

Mark Hicks, head of active savings at Hargreaves Lansdown, said:“These fixed rate cuts mirror the falls that we’ve seen in the rest of the saving market. While rates have headed downhill, the NS&I has shifted gear in order to stay in the middle of the road. Last year, NS&I distorted the market with a market-leading 1 year rate, but these moves imply that NS&I isn’t in any rush to do the same again. It’s not desperate to raise significant funds by paying more than it needs to.

"For anyone holding Premium Bonds this isn’t going to be a great sign. There’s every chance NS&I could cut its variable rates sooner rather than later, which could mean the Premium Bond prize rate gets less generous.

"Anyone considering an NS&I fixed rate bond at these new rates needs to seriously consider whether it’s the right home for their money. There will always be savers who love the brand for its Treasury backing, but given the protections available across the savings market from the FSCS, you’re paying a serious price for additional protection you may not need.

"Online banks and savings platforms offer much better deals.”

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