NS&I has clarified its rules around when Premium Bonds become eligible for the monthly prize draw. When buying Premium Bonds, you usually have to wait a full calendar month before they can go into the monthly draw, which takes place at the start of each month. However, there is an exception to this policy.
If you set up your account so any prizes you win are automatically used to buy more Bonds, there is no need to wait as your new Bonds will qualify for the next month’s draw. NS&I was asked to explain the discrepancy between how the rules apply in the two situations.
A spokesperson said: “Prizes are paid from the interest earned from the total amount held in Premium Bonds. Therefore, Bonds need to be held for a full calendar month to earn interest to be eligible.
“Bond holders who automatically reinvest their prizes are being paid from interest already held by NS&I.” Each £1 Bond eligible to go into the draw has an equal chance of winning a prize.
The odds of winning for each £1 Bond currently stand at 22,000 to one. The prize fund rate for the savings scheme fell from the August draw, dropping from 3.8 percent to 3.6 percent.
An advantage of Premium Bonds is all prizes are tax-free, even for large amounts such as a £50,000 or £100,000 prize, or even one of the £1million jackpots. There are always two £1million prizes in each draw.
However, savers have been urged to note that they could pay tax on their winnings depending on where they put the cash. Tom Francis, head of personal finance at Octopus Money, said: “Where tax could come into play is if you move your winnings into a savings account and start earning interest.
“Many people forget about their personal savings allowance – the amount of interest you can earn each year tax-free.” If you are on the basic rate for income tax, you can earn up to £1,000 in interest over a year with no tax to pay.
This drops to £500 for higher rate taxpayers, while those on the additional rate get no savings allowance at all, and have to pay tax on all their interest earnings.