The tax-free prize draw scheme is being improved to support savers.
National Savings & Investments (NS&I) is making changes to Premium Bonds.
From 1st June, the limit on the amount an individual can invest will rise for the first time in over a decade from £30,000 to £40,000.
And from August there will be two £1 million prize winners each month instead of just one.
The changes were first unveiled by the Chancellor, George Osborne, in his Spring Budget earlier this year and are designed to help support savers.
In 2015/16 the maximum investment will increase even further to £50,000.
How Premium Bonds work
Premium Bonds aren’t like normal savings accounts as they don’t pay a regular return to investors.
Instead the interest that would have been paid is used to fund a prize draw every month.
Each month’s prize fund is calculated based on the prize fund interest rate (currently 1.3%) and the total value of eligible bonds in the draw.
A machine called the Electronic Random Number Indicator Equipment or ERNIE picks out the winning bond numbers.
In May 2014, ERNIE paid out over 1.8 million prizes- ranging from £25 to £1 million and amounting to over £51 million in value.
The odds of winning a prize currently stands at 26,000 to 1, so it’s not a full proof way to grow your savings.
[SPOTLIGHT]But Premium Bonds are popular as any returns you do get are tax-free, you can get easy access to your money and as with all NS&I products your investment is backed by HM Treasury so is 100% secure.
How the changes supports savers
The increase in the limit is good news for those that want to improve their luck.
You get a unique bond number for every £1 you invest in Premium Bonds which gets entered into the draw. So the more you have the better your chances of winning a prize.
Over 21 million people hold Premium Bonds in the UK and around 600,000 have reached the current maximum holdings limit of £30,000. NS&I expects many of these investors will want to top-up from June.
Bonds bought in June will have their first chance to win in the August draw, when the number of £1 million jackpot prizes will double to two.
Alternatives to Premium Bonds
Premium Bonds are good if you've reached the limit on your ISA and are looking for another tax-free return and a safe home for your cash.
However, if you're looking for a guaranteed return or a regular income from your savings as well as to protect your cash from inflation you could be better off looking elsewhere.
We regularly review which accounts are offering the best savings deals across the market. Keep up to date with : Where to earn most interest on your cash, the best instant-access savings rates and the best fixed rate savings accounts
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