How to invest inheritance Reddit

Premium bonds hold a special place in the nations hearts with over £116 billion of the lottery-style savings product held by millions of us.Each month, bond holders are entered int

How to invest inheritance Reddit

Premium bonds hold a special place in the nations hearts with over £116 billion of the lottery-style savings product held by millions of us.

Each month, bond holders are entered into a prize draw to win tax-free cash prizes, with two lucky people taking the £1m jackpot.

Junes Premium Bond prize winners from Essex and Kirklees, held £10,001 and £50,000 in bonds respectively.

The chances of winning big (or indeed winning anything at all) however are pretty slim, so why are Premium Bonds so popular?

In this article we outline:

Related content: Green Savings Bond: what is it and how can I invest?

Premium Bonds are a savings account from National Savings and Investments (NS&I), a government agency

What are Premium Bonds?

Premium bonds were introduced in the late 1950s to encourage Britons to save following the end of the second world war. Savers would be entered into a monthly prize draw where they had the chance to win £1,000. The jackpot is now 1000 times larger.

Rather than offering a guaranteed interest rate, you have the opportunity to win tax-free cash prizes of between £25 and £1m every month. The annual prize fund interest rate is given as 1.4% from June 2022, up from 1% previously.

So while your cash wont grow while its invested, you could win a £1m jackpot. Or you could win nothing at all!

If you are lucky to win one of the larger prizes, check out our article, how to invest £10,000.

Premium bonds are offered by National Savings and Investment (NS&I) which is backed by the Treasury, meaning that all of your money is safe. To add an extra level of security, they are also regulated by the Financial Conduct Authority.

While they offer a fun alternative to an easy access savings account, the odds of winning anything is a lot harder.

Your savings also arent protected from the eroding effect of inflation.

How much can you invest in Premium Bonds?

You can invest from as little as £25 in Premium Bonds and hold a maximum of £50,000. This would give you between 25 and 50,000 entries in the monthly prize draw.

Every £1 you invest is given a unique number and all of these numbers are put into a computer called Ernie (Electronic Random Number Indicator Equipment) which randomly draws out winners.

You can check if you have won by going on the Premium Bonds prize checker webpage

What are the prize amounts for Premium Bonds?

The monthly prize draw offers winners between £25 and a life-changing sum of £1m. Heres a breakdown of the amounts you could win:

  • £25
  • £50
  • £100
  • £500
  • £1,000
  • £5,000
  • £10,000
  • £25,000
  • £50,000
  • £100,000
  • £1,000,000

Each month, two Premium Bond holders win £1m while six bondholders win £100,000.

You can opt to have winnings paid straight into your bank account or to receive them by post in the form of a warrant (like a cheque).

Get ready to celebrate tax-free cash prizes with Premium Bonds

What is the average rate of return on Premium Bonds?

You dont get a Premium Bond interest rate like you would have with most savings products, instead they have an average rate of return.

For every £1 bond, the odds of you winning a prize are 24,500 to one, so pretty slim. This translates to a prize rate of 1.4% from June 2022 onwards (up from 1% prior to this).

But there are two points to remember about these calculations:

  • You may not win any Premium Bond prizes, in which case even a low-interest rate savings account would have been better
  • The more you have in Premium Bonds, the bigger your chances of winning (this is not reflected in the 1.4% prize fund rate, which is just an average for everyone)

Are Premium Bonds a good idea?

Around 21 million Brits hold Premium Bonds, but whether they are a good idea for you depends on your financial circumstances.

Its not a good idea to put all of your life savings in Premium Bonds because you wont earn enough to keep up with inflation (unless you are very lucky and win the jackpot).

Other things to bear in mind:

  • It is a bit like gambling so there is no guarantee you will win anything and you would get a higher rate elsewhere
  • Youll likely earn more money by contributing into a savings account instead

But if you have invested most of your savings and have several thousand pounds sat in cash, investing in Premium Bonds might be a good option.

Where buying Premium Bonds can really come in handy in this regard is if you have a large amount of money.

For example, you could:

  • Invest £100,000
  • Keep £10,000 in easy access savings
  • Set aside another £10,000 for a cheeky flutter on Premium Bonds for the chance of winning a big cash prize

Alternatively, you could put the whole sum into another of NS&Is products, such as its Direct Saver account, where the maximum amount you can pay in is £2m.

Like everything else in the NS&I stable, the whole lot is protected by the Treasury.

If you are fortunate enough to win really big money, check out how to invest £50,000.

What are the advantages of putting money in Premium Bonds?

1. Your money is protected

Premium Bonds are sold by National Savings and Investments (NS&I), which is owned by the government. This means that customers money is 100% protected.

This compares to bank and building society savings accounts, which in the event of the provider going bust, are regulated by the Financial Services Compensation Scheme. The FSCS only protects deposits up to £85,000 per person, per institution.

However, the maximum you can put into Premium Bonds is £50,000, so if you opted to put that in a high street bank account instead, you would effectively get the same protection.

2. They are tax-free

Another perk for some people is that Premium Bond prizes are tax-free.

I say it is a perk for some people because most of us have a personal savings allowance (PSA).

This means:

  • Basic-rate taxpayers can earn up to £1,000 in interest on their savings each year without paying a penny in tax
  • Higher-rate payers can receive up to £500 interest tax-free
  • Additional-rate taxpayers (those who pay the top rate of 45% income tax) dont benefit from the PSA

The allowance means 95% of people dont pay any tax on their savings interest, so Premium Bonds wouldnt have any real tax advantage.

But its still reassuring to know that if you do win a big cash prize, it is completely tax-free.

3. You can reinvest

There is also a type of compound interest effect when you win with Premium Bonds.

Rather than take the cash, you can have the money reinvested (unless you already hold the maximum £50,000).

Your winnings can buy more bonds. So every £1 you invest buys another bond, whose unique number is entered into the monthly prize draw.

This means your chances of winning increase.

4. An easy access option

Putting money in Premium Bonds could be worthwhile if youre looking for a temporary home for your cash, and might need fairly quick access to it.

You may not want to tie your cash up in a fixed-term savings account (where you lock up your money up to get a better interest rate), or take the more risky route of investing in the stock market.

You can withdraw your cash from Premium Bonds at any time via the NS&I website (although it can take up to eight working days for the money to arrive in your bank account).

What are the disadvantages of Premium Bonds?

It is a gamble. You could win £1m, but you could win nothing.

In that respect, Premium Bonds are a form of gambling similar to buying National Lottery tickets rather than being a savings or an investment account.

However, its worth remembering that its only the interest that is a gamble. The actual cash you put into Premium Bonds is safe and remains intact.

When Premium Bonds are worth it

Premium Bonds could be worth investing in if you:

  • Have a lot of money to save (the more bonds you have, the bigger your chance of winning a prize)
  • Pay tax on savings interest (and have already used up your annual cash ISA allowance)
  • Like the idea of a prize draw (you could win big, but you also may not win anything)

It comes down to the type of person you are. Does the element of surprise give you the feel-good factor? How would you feel if you didnt win anything?

What are the odds of winning on Premium Bonds?

You have a one in 24,500 chance of winning the lowest prize of £25 each month for each £1 bond number.

But these sorts of calculations are tricky and should not be relied upon. This is because there are multiple prizes each month. For example, you could win several £25 prizes and even scoop a £50,000 prize all in the same month.

The value of the total prize draw also changes each month as it reflects the number of bonds that customers have.

Also bear in mind that you dont get this interest rate as regular income unlike conventional savings accounts.

What are the odds of winning the Premium Bond jackpot?

If you fancy the £1 million jackpot, of which there are two lucky winners each month, then for every £1 bond you hold, in one month, you have a 1 in56,199,445,087 chance!

NS&I says the chance of winning the £1m jackpot over the course of a year (or 12 monthly prize draws) is one in 41,219,096 if you have £100 in Premium Bonds.

If you have £1,000 invested, the odds of winning are one in 4,117,912. And if you have the maximum £50,000 in bonds, your chances increase to one in 81,458.

Each £1 bond has an equal chance of winning. So to boost your chances, the more you buy, the more your chances improve in the monthly prize draw. The two jackpot winners in June 2022 held £10,001 and £50,000 in Premium Bonds respectively.

So dont start lingering on any big Premium Bond prize daydreams about property, cars or giving up your job just yet.

If you think you might prefer a regular interest rate: Top savings accounts in 2022.

How do Premium Bonds compare with savings accounts?

The nearest thing Premium Bonds have to an interest rate is their annual prize fund interest rate, which is currently 1.4%. This refers to the average prize pay out.

However, the odds of winning nothing can be high depending on how much you have invested and the calculations are not straightforward.

The interest rate applies to the average customer who has an average amount of luck. In other words: the rate doesnt mean anything to those people who dont win anything because for them the interest rate is zero.

However, the annual prize fund rate can be used as a guide when comparing Premium Bonds to putting money in a savings account, where you do have a guarantee of earning interest. Furthermore, savings rates currently beat the Premium Bonds annual prize fund rate across the board.

We have crunched some numbers to see how Premium Bonds would compare with savings accounts for three different sums of money.

How Premium Bonds compare with savings over a year:

Premium Bonds with a 1.4% prize fund rate

  • £1,000 (£0 won)
  • £5,000 (£50 won)
  • £20,000 (£275 won)

Online easy access account with a 1.5% interest rate

  • £1,000 (£15 earned)
  • £5,000 (£75 earned)
  • £20,000 (£300 earned)

Fixed saver account with a 2% interest rate

  • £1,000 (£20 earned)
  • £5,000 (£100 earned)
  • £20,000 (£400 earned)

In summary: savings accounts are generally better than Premium Bonds, especially if youre saving higher amounts. If you do opt for Premium Bonds, youll need a healthy dose of luck to beat savings rates.

How to buy Premium Bonds

If you have read this article and decided you want to invest in Premium Bonds, they can be bought through the NS&I website.

Alternatively, you can buy over the phone by calling 08085 007 007 (or +44 1253 832007 if youre outside the UK).

Can I buy Premium Bonds for my children or grandchildren?

You can buy Premium Bonds for any child  a fun and educational gift.

Until the child reaches the age of 16, the parent or guardian nominated on the application takes care of the bonds, no matter who buys them. That nominated person will be sent the bond number and record, any prizes won and payment for cashed-in bonds until the child turns 16.

You can buy Premium Bonds for kids either by visiting the NS&I gift page, or by filling in an application form and posting it to: NS&I, Sunderland, SR43 2SB.

If you are a grandparent, wanting to give your grandkids a financial leg-up, check out our article: Five ways to invest and save for grandchildren.

How can I check if my Premium Bonds have won?

You can go to the online prize checker on the second working day of the month.

There is also a Premium Bonds prize checker app available for iPhones and Androids.

The draw tends to take place in the last few days of the month so that NS&I is able to do all the checks it needs to before announcing the winners.

NS&I publishes the big prize Premium Bond winners on the first working day of the month.

Can you lose money with Premium Bonds?

No. NS&I is authorised and regulated by the Treasury, rather than a bank, so 100% of your money is protected.

Even if youre an unlucky customer and never win anything, the amount you put into Premium Bonds remains safe. Although not necessarily in terms of the real value of the money.

Unless you win enough to keep up with the rate of inflation then your cash is actually shrinking in terms of what it can buy.

How long does it take for Premium Bond winnings to be paid?

If you are one of the lucky winners, bear in mind that it can take up to three working days for your money to reach your account.

But if you havent received the money in your account after seven working days, call NS&I to make sure that they have the correct bank details for you.

If you want to receive a cheque in the post, be warned they can take till the end of the month to arrive. But if you still havent received yours after a month, get in touch with NS&I and you will be sent a replacement.

How can I cash in my Premium Bonds?

There are several ways to cash in your Premium Bonds.

  • The easiest way is to use the online service. If you bought the bonds online then youre already registered. Simply log in using the details you provided .
  • You can also cash them in over the phone by calling NS&I on 08085 007 007. Again because you had bought the phones over the phone you should be registered.
  • Either of these options should only take a few minutes. NS&I will cash in your oldest Bonds first and pay the money into your nominated current account.
  • You can also cash in your Bonds by filling out the Premium Bonds Cash In form.
  • Select how many bonds you want to cash in by ticking the relevant box in section three of the form. If you want to cash in a specific set of your Bond numbers, simply enter the start of the range of numbers in section four.If you tick No in section four or leave it blank, NS&I will cash in your oldest bonds first.

How long does it take to cash in Premium Bonds?

According to NS&I, it generally takes up to eight working days for your Premium Bond money to reach your bank account.

However, at the time of writing NS&I has made clear it is busier than usual so posting a withdrawal form could take up to two weeks to process your payment.

You can cash in your bonds at any time.

How can I find lost Premium Bonds?

NS&I offers a tracing service for lost Premium Bonds  you simply fill in the request to trace dormant savings form.

If you have misplaced your Premium Bond holders number, you can phone NS&I on 08085 007 007 or write and ask for a replacement bond record to be sent to you.

Give as much detail as you can about any:

  • Past addresses
  • Where and when you bought the Premium Bonds
  • How much they might be worth

Can you believe there are currently more than 1.7m unclaimed prizes worth more than £64m? The good news is that the money is safe and waiting to be claimed. NS&I keeps it indefinitely, so even if its years later, you can still claim.

What happens to Premium Bonds if I die?

If you die, your Premium Bonds become part of your estate.

This means they could be liable for inheritance tax, which is payable at up to 40% above a certain threshold.

In terms of what happens to any winnings, the person managing your affairs can opt to leave the bonds in the prize draw for 12 months after the date of the death.

Once NS&I has been told about a customers death, any Premium Bonds and prizes won are paid by warrant to the person who is entitled to the money. A death claims form will need to be completed first.

You might also want to read our guide on inheritance tax.

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