Premium Bonds

(The weekly series - Pocket Money - where I explain financial basics in fewer than 200 words. Feel free to make suggestions!)

Premium Bonds are a savings product from NS&I, the UK government-owned savings bank, and are, ultimately, a lottery.

You buy £1 bonds which are entered into a monthly prize draw where they could win anything from £25 up to £1,000,000. Each eligible £1 has exactly the same chance of winning.

The prize fund rate is 3.6%. This is not the interest - it's the average payout (so £3.60 paid out for each £100 invested). Prizes are distributed unevenly- a small number of huge prizes and many more smaller ones - so most people get less than 3.6%, and some people get 0%.

Currently, plenty of savings accounts offer more than 3.6%, and those rates are guaranteed…

The minimum investment is £25 and the maximum you can hold is £50,000 (anything over that simply isn't entered into the draw). You can buy them for children too. (My granddad bought some for me and I keep meaning to look them up!)

Prizes are tax free though so, if you've maxed out your ISA, your interest elsewhere is pushing you above your Personal Savings Allowance, and you don't hate gambling, then they might be for you.

Love Eleanor. xxx