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Premium bonds were first introduced to the UK in 1956 by National Savings and Investments in a bid to decrease inflation and give people a chance to win tax free cash prizes for their investments rather than accrue interest by saving in a bank. The good thing about them is that they are backed by UK government and are 100% secure so you have no chance of losing any money, and you can withdraw your money at any time via cheque.

The cash prizes are based on the amount of interest the money held by all bonds would have made if it was in a bank, and it is estimated that there are currently 27 billion bonds. If you happen to be the holder of one of these bonds you have odds of 36 000 to one to win one of the 1 million cash prizes including 1 million pounds in cash. The more bonds you hold the higher the chance you have of winning a prize from 25 to 1 million. The minimum amount you can buy is 100 and the maximum amount you can hold is 30 000. Bonds can be purchased at the psot office and online.

The current percentage break down of prizes is :-

For higher prize values (6% of total prize fund)

1 million pounds

100 000

50 000

25 000

10 000

5 000

Medium prize values (5% of total prize fund)

1000

500

Lower prize values (89% of total prize fund)

100

50

25

When you purchase a 1 bond you are allocated a bond number for each and every bond and once a month ERNIE (Electronic Random Number Indicator Equipment) draws out the winning numbers randomly.

Premium bonds can be purchased by anyone over the age of 16, or be bought for a child by their parent, or grandparents. Many people hold premium bonds for their children in the hope they will land a large cash prize which will pay for their upbringing and education. The parents will be responsible for these bonds until the child turns 16 and will receive any corresponding mail.

Due to the current financial situation with banks offering very low interest rates the amount of money invested in premium bonds has increased as many see it as a better alternative to gain more money than your savings in a bank would. It is important to note though that the interest rate also affects premium bonds as it is used to calculate the prize fund and the number of each prize. Rest assured there is always the guarantee that there will be at least one 1 million pound prize and you never know you could be the lucky winner even if you only hold small amount of bonds.

Learn more about this author, Marie Bywater.
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