Mean machine

By NEIL SIMPSON
Updated:

 

ERNIE is reaping a bumper harvest from Premium Bonds. But the amount being handed out in prizes has plunged to a 45-year low.

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In the last tax year, savers pumped a record £3.6bn into the scheme, which is run by National Savings & Investments. Director Gill Cattanach says: 'People like them because they are serious investments, but with an element of fun. Where else can you have the chance of winning £1m and still get your stake back whenever you want it?'

This dual attraction helps to explain why Premium Bond sales have risen 14-fold in the past decade alone.

But while the lure of the tax-free £1m monthly jackpot stays strong - the 100th went to a bondholder from East Sussex ten days ago - the overall value of prizes is falling and wins are becoming scarcer. At the start of the year, the odds against winning in the monthly draw were 20,000-1. Now the chances are 28,500-1.

Most winning cheques are for £50 and the total payout from Ernie - the Electronic Random Number Indicator Equipment that picks the lucky numbers - is set at an all-time low of 2.4% of the total invested.

But Cattanach says: 'Prizes are tax-free, so this return is worth 4% gross to a higherrate taxpayer. We still believe that we offer an exciting option for savers.'

Justin Urquhart Stewart, director of Seven Investment Management in London, says today's low savings rates mean that a surprisingly wide range of people are turning to Premium Bonds. With returns on many bank and building society accounts below the rate of inflation, more people are ready to set aside some savings for a gamble, according to Urquhart Stewart.

He says: 'Many people, especially self-employed workers or those with small businesses, traditionally put money for tax bills in ordinary savings accounts. Now these accounts are offering such small rewards that many are putting their money into Premium Bonds for a year instead. They know they can get at their money when the bill falls due and - who knows? - they just might win the big one.'

Unfortunately, you never know how long it might take for your numbers to come up. Some bondholders go for years without winning prizes, while others get lucky far sooner. For example the anonymous winner of this month's £1m jackpot bought £5,000 of bonds less than a year ago.

Board game creator Nikki Graham, 36, is a typical Ernie saver. She and business partner Michelle Grahame's first game, Nookii, has gone on sale nationwide, including at top London toy store Hamleys. They are also planning to launch a dinner party game called Foolin' Around and are trying to crack the lucrative American market.

Nikki, who lives in west London, says: 'Money is tight and we are always looking for a lump sum to help us expand the business, so the chance of winning something is attractive. That's why I won't sell the few Premium Bonds I have had since I was a child. So far they've only produced a few small cheques, but like everyone else I am still hoping for a big win.'

• More than £20m in Premium Bond prizes is waiting to be claimed, mostly by people who have moved without giving National Savings a new address. To update your records, contact National Savings or write to Premium Bonds, NS&I, Blackpool FY3 9YP.

There is no time limit for claiming prizes and bonds go into every monthly draw until they are cashed in.

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