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Premium Bonds Investment Return Calculator.


Click here to launch the calculator

This calculator works the weighted annualised investment return (based upon your total winnings to date) if you have purchased Premium Bonds at different times.

The purpose of this calculator is to work out the weighted annualised investment return from a collection of premium bonds purchased at different dates (the return being the sum total of your winnings to date).
Most adults in the United Kingdom are aware of what Premium Bonds are (and probably own some too). For those who are unclear, Premium Bonds are investments issued by National Savings & Investments where the return comes from tax-free prizes, not regular interest. There is a sliding scale of prizes ranging from £50 to £1,000,000.
The definition of Premium Bonds as an "Investment" has often been questioned. Effectively, when you buy Premium Bonds, you are buying the privilege of entering a lottery each month. This is more akin to gambling than to genuine investment.
Purchasing a few Premium Bonds for yourself / children / grandchildren has always been popular, and the hook is that you could win the top prize. However, with over 27 Billion bond numbers currently in existence, the odds aren't exactly on your side.

(mis)Using Premium Bonds as an Income Generating Asset

Problems can occur when some individuals start to treat them like a genuine investment. NS&I themselves explicitly state that Premium Bonds are not suitable for individuals who are looking for a regular income. Most people will have heard stories about friends, neighbours and relatives who hold a lot of Premium Bonds and win prizes almost every month. From this fact they infer that they must be a good investment. As the odds of winning a £50 prize are 24000:1, it is not surprising that individuals who hold the maximum number of Premium Bonds (currently 40,000) win almost every month.
However, if you add up the total prizes won to date and compare it to the number of Premium Bonds purchased and the length of time held, the average return on the original investment is often in the range of 1 - 2 % per annum. The frequency of the winnings all too often masks low real returns. It is clear that if this money was invested in alternative assets such as Deposit Accounts or high-yielding Collective Investment Schemes, a higher return on capital can be generated.
Another common misunderstanding is about the "Interest Rate" used to accrue the total prize fund each month. If the rate is 3.50%, the prize fund will equal one month's interest at this rate on the total value of all Premium Bonds. This is NOT the average return that you could expect to receive by purchasing premium bonds.

Are they worthwhile?

Whether such large holdings are suitable ultimately depends on individual circumstances. If you hold large amounts of premium bonds, but have alternative sources of income, this is usually not a problem. However, if you come to rely on the winnings to supplement your other income, then you should question whether the money could be employed better elsewhere. Despite this, many people are unwilling to surrender Premium Bonds, due to the psychological fear of missing out on a top prize should they do so. As mentioned, the odds of this happening are heavily weighted against you, but it usually makes things more palatable if you retain some holdings.
The final factor is that winnings from Premium Bonds are tax free, and this does make them quite attractive. Do not forget that if you surrender premium bonds and invest the proceeds elsewhere, the chances are that the income will be taxable unless you invest within an ISA, or the sum total of your income falls within the nil-rate band. A winning of £100 from a Premium Bond is £100 in your pocket, but £100 of gross interest in a bank account is only worth £80 to a basic-rate taxpayer and £60 to a higher-rate taxpayer. However, this is balanced by the fact that money left in the bank benefits from interest upon interest (the magic effect of compounding) whilst the face value of Premium Bonds never increase (in fact they decrease if you take into account the effects of inflation). If you are considering surrendering a large amount of premium bonds, but are unsure what to do, you should seek Independent Financial Advice.
If you have purchased different amounts of Premium Bonds at different dates, this calculator allows you to input as many as you need to, and it will generate a weighted average annualised return, based upon the sum total of your winnings to date. This takes into account the quantity of each holding, and the length of time that you have owned each holding, and weights the return according to these factors.
The figures projected by the calculator are only for guidance purposes - whilst we aim to ensure the accuracy of our calculators, we can take no responsibility for the usage made of the calculations generated on this site.

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