On 1 November it will be 50 years since Premium Bonds first went on sale. To celebrate the anniversary six extra million pound prizes will be given away.
On 17 April 1956 the then Chancellor Harold Macmillan unveiled plans for a new state saving scheme. It was bold, it was brash, but it also drew criticism from Shadow Chancellor Harold Wilson. The then Labour chancellor urged MacMillan to examine the radical proposal as part of the Government's bill on gambling and betting.
But despite the protests from the Labour Party, and also from well-meaning men of the cloth, Premium Bonds made their debut on 1 November 1956. The first person to buy a Premium Bond was Alderman Sir Cuthbert Ackroyd who later became Lord Mayor of London. But it is unclear whether Ackroyd ever won the top prize, which was £1,000 at the time.
The original purpose of Premium Bonds was to curb inflation and to encourage more people in the post-war period to save. But with inflation now largely under control, and a myriad of ways for Britons to save and invest, do Premium Bonds still serve a useful purpose today?
Well, 23 million people think so. Collectively they hold around £32 billion of Premium Bonds, which equates to around £1,400 each. Of course, some people hold more, because by increasing your total holding you can appreciably improve your chances of scooping one of the million plus prizes on offer every month.
Currently, the quoted yield on Premium Bonds, which is the total prize fund divided by the amount of money invested, is 3.15%. Consequently, you have a one in 24,000 chance of winning one of the 1.4m prizes every month with every bond held. But by increasing your holding to the maximum £30,000, you may boost your chances to wining 15 prizes a year provided you are blessed with "average luck".
However, these prizes are most likely to be one of the lower-value £50 or £100 prizes since these make up almost 90% of the prize funds paid out. Nevertheless, you have a 1 in 16 billion chance of hitting the £1 million jackpot for every £1 you invest. And to celebrate the 50th anniversary of Premium Bonds, National Savings & Investments will be giving away three extra jackpots on top of the usual two in December 2006 and June 2007. So your chances of being a millionaire will improve to 1 in 6 billion in those two months.
But are Premium Bonds good value for money?
For risk adverse savers, Premium Bonds can be a good way to salt away money for a rainy day. Additionally, there is the added thrill of maybe winning one of the higher-value prizes that will boost your overall return.
However, the price of safety will be a lower overall return on your investment. But let me put it another way. In June 2003, National Savings & Investment raised the maximum holding limit for Premium Bonds to £30,000. If you had taken up their offer, and had average luck, your investment may be worth around £32,700 today, which isn't bad. But if you had invested the full amount into a FTSE tracker instead, your investment would be worth £50,000!
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