Posted On May 14, 2022
Introduced in 1956 by Harold Macmillan, the premium bond is defined as a government bond that is priced above par. According to National Savings and Investments (NS&I), about 23 million people are premium bondholders.
Issued by the UK government’s National Savings and Investment scheme, the premium bond is an easy and safe way to save money along with the chance to win tax-free prizes. It guarantees investors that their capital remains 100% safe. In general, there are two types of premium bonuses: non-callable bonuses and callable bonuses.
A premium bondholder invests money in the government. Instead of paying bondholders interest, the government puts money into a prize fund and gives the bondholder the opportunity to win tax-free prizes. Bonus bonuses cannot be in joint names and are not transferable to another person. One of the main advantages is that all or part of the premium bonuses can be cashed out at any time you want.
The holder of the bonus is assigned a series of numbers for each pound sterling invested. For example, 100 bonus numbers are provided for the purchase of £100 worth of bonuses. The bonus holder therefore has 100 chances of winning a prize. The random number is generated by a machine called the Electronic Random Number Indicator Equipment (ERNIE). Every month a prize draw is held and the bonus holder can win from £50 to £1 million. The prize you win from the draw is free of UK income and capital gains tax.
Premium bonds can be purchased over the phone or the application form can be obtained from the post office. The application can also be downloaded from the Internet. Premium bonuses allow an investor to invest a minimum amount of £100; sold in multiples of £10. The maximum holding limit is up to a total of £30,000. Anyone who is 16 years of age or older can apply for premium bonuses. For children under the age of 16, premium bonds are purchased by their parents or guardians.