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tax, so if you pay higher-rate tax this equates to about 3% before tax, but just 2.2% for a basic rate tax-payer and of course just 1.8% for non-tax payers, which really isn't very good. The best rate of return from high-interest rate savings accounts at the moment is over 3%.

There is of course that possibility of winning lots of dosh, without any chance of losing your money, unlike lotteries or the stock-market. NS&I is fully backed by the government so your investment is safer than in a bank account, but given that all U.K. bank accounts are now fully backed by a government scheme up to 50,000 this doesn't really gain you anything, unless you hold other NS&I products such as Savings Certificates etc. It takes over a month for your money to be invested and earning "interest", so it is best only to buy for the long term otherwise the effective interest rate will be even worse.

Is it gambling or investment?

Arguably it is both. Your initial stake is secure and safe, but you are effectively gambling just the interest that you would have received elsewhere on a kind of lottery.

NS&I have not kept the rates competitive with the best accounts on the market, so it is difficult to justify buying them, except maybe for higher-rate tax-payers (and even then you could do better elsewhere). I win a prize most months, and I have even won up to 500 some months, but they still do not represent as good a return as many cash investments at the moment. Every month in which I don't get a prize, I vow to sell some or all of my premium bonds, but some how I am just too attached to them, then I win 50 the next month and I'm so happy that I decide never to sell them. The thrill of opening that familiar
envelope to see what I've won is almost worth the low-level of interest. It is also possible to check if you have won on the web-site on the third working-day of the month. 30,000 should result in an average (mean) return of 45 per month or less than 10 prizes a year.

Conclusion

National Saving Premium Bonds are not a great investment, but they are surprisingly fun. I would not recommend having too many of them at the moment, but having enough for a few prizes a year and that small chance of lots of money, could be worth doing instead of the lottery.

Learn more about this author, Andrew Porter.
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