What are Premium Bonds and how much interest do they pay?

Many people buy Premium Bonds but if this isn’t something you do, you might be wondering what they are and how much interest they pay as well as how to get started.

If you want to know more about Premium Bonds, look no further as we’ve rounded up some key information about them.

A minimum of £25 must be invested for each Premium Bond (Image: Johnny Green/PA)

What are Premium Bonds and how do I buy them?

Premium Bonds are described as a “fun way to save” by the NS&I on its website.

People buy Premium Bonds as an investment and this can be done either online, over the phone, by post or by a bank transfer or standing order if you already have an account.

The website explains that anyone investing must spend at least £25 for each investment. The maximum you can pay in is £50,000.

How much interest do Premium Bonds pay?

The interest rate for Premium Bonds is “3.30% (annual prize fund rate) from the March 2023 prize draw”, according to the NS&I website.

No interest is earned with Premium Bonds and instead the interest rate is put into a monthly prize draw.

This prize draw offers tax-free prizes and winners can check if their number/s won a prize via the prize checker online or the app and you can even ask Alexa to check for prizes.

It’s important to “remember that inflation can reduce the true value of your money over time”, the website says.

How does the prize draw work?

Millions of prizes are won by Premium Bonds holders every month with prizes all being tax-free and ranging from £25 to £1 million.

Bond holders’ numbers “are generated at random” by Ernie, the NS&I’s random-number generator.

This number will link all your individual bonds and you’ll need to “quote it whenever you buy more Bonds, cash them in or have a query”, the website explains.

Your Bond number will be different to your NS&I number which you’ll receive when registering for the online or phone service.

You can find out more about Premium Bonds via the NS&I website.