Premium Bonds explained: how to buy, how to cash in, when prizes are announced and more

Rather than paying out interest like a normal savings account, with Premium Bonds the interest is bundled together and a lucky section of bondholders win prizes each month.

So while your initial stake is never at risk, if you don't win anything your money will slowly lose value as inflation erodes its value.

Every bond number has a “separate and equal chance each month of winning a prize” according to NS&I, although your odds of winning something improves with the number of Premium Bonds you own.

If you want to buy tax-free Premium Bonds, you have to pay at least £25 with NS&I offering a unique bond number for every £1 you pay.

Once you’ve bought a Premium Bond, you’ll be eligible for the draw one full calendar month after you buy them.

So, if you buy them in August, you’ll be in every draw from October.

It’s easy to buy Premium Bonds for yourself, as you can buy online, over the phone or by post with a cheque.

If you want to buy these bonds as a gift, you can apply online or by post, but only the nominated parent or guardian will be able to manage and cash in the bonds.

Parents and legal guardians also have the option to apply over the phone.

You can learn more about how to buy Premium Bonds in this handy guide.

NS&I uses Electronic Random Number Indicator Equipment (ERNIE) to generate numbers at random, which are then matched against eligible bond numbers to find the lucky winners.

There’s even an independent check by the Government’s Actuary Department to rule out any intervention every month.

If the draw is believed to be completely random, the department issues a certificate and the winners are announced.

NS&I Premium Bonds: how winners and prizes are picked

There is more than £60 million worth of unclaimed prizes sitting at NS&I headquarters, with some individual prizes worth up to £100,000.

NS&I says the most common reason prizes go unclaimed is that people move home and forget to update their records. So make sure your personal details are up to date on the NS&I site to avoid potentially missing out on a windfall.

You can cash in all or some of your bonds at any time by calling NS&I or logging onto the website.

Alternatively, you can print, fill out and send a cashing in form, which should include any bond certificates to be cashed in (if you have them).

How quickly you get your money back from your NS&I account depends on the amount you want to withdraw, and the method used, but it will usually take at least a few days.

For more details, check out our guide on selling Premium Bonds

Before you even invest in Premium Bonds, you can check what your chances are of winning a prize.

We reveal the amount of prizes up for grabs and your odds of winning something with a £1 bond (based on how they were distributed in the August 2019 draw).

Unfortunately, the odds are not in your favour to grab the top £1 million prize with a £1 bond at one in 40.99 billion.

To find out a more detailed breakdown of your odds, check out Premium Bonds odds: your chances of winning.

Thanks to recent rule changes by NS&I, you can buy Premium Bonds for someone else’s child, so grandparents, aunts, uncles and even family friends can now buy these bonds.

If you want to buy a child under the age of 16 some Premium Bonds, you can apply online, over the phone or by post.

If you’re not the parent or legal guardian, you can apply either online or by post, but you need to ensure whoever has to look after the bonds is happy to.

You also will need details from the parent or guardian in order to buy the Premium Bonds for their child.

To find out everything you need to know, check out this article.