Tax-Free Investments Using Premium Bonds

tax-free investments using premium bonds

Tax-free investments using premium bonds are popular among people these days. People tend to invest in the idea of gaining through lottery products and growing their savings. This happens every month when the bondholders become a part of the lucky draw to earn tax-free cash. However, only two individuals turn out to be the luckiest who can win this £1m jackpot.

Moreover, since the year 1980, there has been a visible and constant increase in the prize rate of these premium bonds. By this, we understand that every month brings in more amount if you have a chance to win the lucky draw. This has been observed that the winning chances are very slim in this process. You must be wondering why are people still investing and what makes premium bonds so popular still. All of these queries will be answered in this article as we will delve into the discussion of what tax-free investments use premium bonds, how much is advisable to invest, and what are the benefits to invest.


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What Are Tax-Free Investments Using Premium Bonds?

In the late years of 1950s, premium bonds were introduced to the people. The reason behind this tax-free investment was to encourage people to grow their savings and come out of the effects of the second world war. Initially, the savers of the era tend to take part in the monthly lucky draw to check their luck of winning an amount of £1,000. However, this jackpot has grown up to be 1000 times more beneficial for the people who still take part in the lucky draw to win this tax-free amount.

Moreover, the tax-free cash prize limit is from £25 to £1m. You get a chance to win this every month. The annual interest rate has gone up to 2.2% from the month of October 2022. The previous annual interest rate used to be 1.4%. If you find yourself lucky enough to get a large prize, you are just on the right page to know how beneficial it can be to make such an investment in premium bonds. It is a safe process because this is handled by the National Savings and Investment and the process is fully backed through the treasury. So there are no chances of fraud in this case.


How Much Should I Invest in Premium Bonds?

The minimum limit amount is £25 that you can invest in the premium bonds. The maximum allowed amount to make an investment is £50,000. This means that the lucky draw that is conducted on monthly basis gives you an opportunity to invest from £25 to £50,000. Each and every £1 that you invest in the premium bond will have a unique code number which will be recorded on the computer.

This is known as ERNIE means Electronic Random Number Indicator Equipment. The winners are then chosen randomly. Moreover, there is a webpage for the premium bonds, you can visit the website to know whether you are lucky enough to win or not. The usual amount that the winners get monthly is from £25 to £1m. The bigger the prize, the more your life will be changed in a positive manner. Two of the winners are selected every month for the amount of £1m. Moreover, six individuals are randomly selected for the prize of £100,000. You have a choice to get the amount straight into your account or receive it through the cheque that is sent to the winners by post.


Is Investing In Premium Bonds a Good Idea?

According to recent research, around 21 million people are bondholders. However, if you enquire about whether it’s a good idea to invest in premium bonds, this will vary from one person to another. This is because of the different financial positions of every other individual. So it depends on your financial circumstances how better of an idea it could turn out to be for your unique situation.

Moreover, it is suggested to not invest all of your savings in the premium bonds, because you will not have enough to manage the situation of inflation in that case. There is an exception of people who turn out to be very lucky and have a high chance of winning this jackpot. There are a few important factors that you should consider before you decide to make an  investment:

  • If you invest your money in a saving account, that will turn out to be more beneficial for you.
  • As it is just like any other gambling game, there is no surety of winning and there are several other schemes that will give you ensured profits.
  • If you have enough amount in saving after the investment in the premium bonds, then it’s a really good idea to have a chance to win the big amount.
  • Having a large amount of money can make this kind of investment a good idea.


The Bottom Line

Now that you have gathered a fair amount of information about tax-free investments using premium bonds, we can bring the discussion towards wrapping up. We can say that this chance of winning tax-free amounts from the premium bonds is very catchy for people who have a large amount in their savings accounts, however, if you do not hold much amount in your saving account then it will not be wise to make such an investment with your hard earned money. We hope these few minutes of reading have helped you to develop a better understanding of tax-free investments of premium bonds and the chances of getting the benefits from it.


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Disclaimer: All the information provided in this blog on tax-free investments using premium bonds, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.


  1. https://pro-taxman.co.uk/tax-free-investments-using-premium-bonds/#:~:text=Although%20Premium%20Bonds%20are%20not,’%20will%20be%20tax%2Dfree.
  2. https://www.nidirect.gov.uk/articles/national-savings-and-investments-products