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Last Updated: Thursday, 26 October 2006, 14:53 GMT 15:53 UK
Q&A: Are Premium Bonds worth it?
Hands and money
Prizes range from 50 to 1m
Premium Bonds are 50 years old. They offer a unique mix of prizes and capital protection. Sales have been soaring in recent times, why are they so popular?

What are premium bonds?

Premium Bonds were introduced in 1956, when the government tried to encourage ordinary wage earners to save by running a 'risk-free' lottery.

Now 23 million people in the UK own at least one premium bond.

CHANGED ODDS*
February 1993: 11,000-1
May 1997: 23,066-1
Mar 2002 - Feb 2003: 28,500-1
Oct 2006 24,000-1
Odds for winning any amount. Source: National Savings & Investments.

Investors buy bonds worth 1 from the Post Office or by post from National Savings & Investments (NS&I). The minimum stake is 100, and the maximum 30,000.

Over the past few years sales have rocketed, as people look for a safe home for their investments against a backdrop of low interest rates.

The main attraction of National Savings is that they are a relatively safe investment and backed by the Treasury.

Anyone aged 16 years or over can buy Premium Bonds for themselves. Premium Bonds can be bought for children under 16 by their parents, grandparents, great grandparents or guardians.

How much can I win?

Every month Ernie (Electronic Random Number Indicator Equipment) - the computer which selects the winners - gives away around 600,000 prizes, including a 1 million jackpot - introduced in 1994 - and about 600,000 other prizes ranging from 50 to 100,000.

What are the main advantages?

The same bond can in theory win time and time again.

Premium Bonds can be cashed in at any time, with the only loss being the potential interest that could have been earned in a building society or other type of investment - and winnings are tax-free.

While you can't guarantee you can win, part of the fun of investing in Premium Bonds is waiting for that letter to land on the doormat saying you have won.

But will my chance of winning decrease as more people pile into them?

National Savings is keen to stress Ernie generates the winning Premium Bond numbers entirely at random.

But, according to official figures, the odds on winning are poorer than they were back in the 1990s.

In February 1993 a premium bond holder faced odds of just 11,000 to one.

A premium bond owner currently has a 24,000 to one chance of winning.

A HISTORY OF ERNIE
How the UK's money-making machine has changed

However, if you enjoyed average luck National Savings says you could expect to earn about 3.1% off your investment a year - not bad when many people have their money languishing in current accounts with rates as low as 0.1%.

How do I know if I have won?

Even if the odds are not as good as they once were, many people are still failing to claim their prizes.

National Savings is still looking after 500,000 unclaimed prizes worth a total of 30m.

The good news is there is no time limit on claiming prizes if the bond holder is alive.

But, unlike other NS&I savings plans, most Premium Bond prizes have to be claimed within 12 months of the holder's death.

If you think you may have won, you can request a claim form either by phone, on 0845 9645000, or at its website www.nsandi.com .

Alternatively you can check if you have won by writing to Premium Bonds, NS&I, Blackpool FY3 9YP.




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