Premium bonds turn 60 on Tuesday, and although recent years have seen cuts to the amount paid out, 21 million savers now hold more than £63bn in the government-backed investments.
The bonds, which, instead of paying interest, offer the chance to win cash prizes each month, were launched by chancellor Harold Macmillan in his 1956 budget, and the first one was bought on 1 November of that year by the lord mayor of London, Sir Cuthbert Ackroyd.
By the end of their first day on sale, £5m worth of premium bonds had been sold. The first draw – offering a top prize of £1,000 – was held on 1 June 1957.
Since then, 355m prizes with a total value of £17bn have been handed out, with the winning numbers selected by successive versions of Ernie, the electronic random number indicating equipment.
The bonds are sold by National Savings & Investments, and are guaranteed by the Treasury. Since 1994 the jackpot has been £1m. There are now two jackpots each month, and more than 2m tax-free prizes.
Savers can now buy up to £50,000 of bonds, and each has a 30,000 to one chance of winning a prize. The prize fund currently earns interest of 1.25% a year, however, savers will generally get lower runs – unless they win the jackpot. Recently, Adrian Lowcock, investment director at fund managers Architas, said that for the majority of premium bond holders the average return “is closer to zero”.
Lowcock said the bonds were not a way for savers to boost their returns but “an option for someone who has a large well-diversified portfolio and can afford not to make any money from what they put into premium bonds”.
Danny Cox from financial advisers Hargreaves Lansdown described premium bonds as a national treasure. He said: “More people hold premium bonds than save into cash Isas. With cash returns so poor, the potential for a tax-free prize compared with meagre or zero interest is more attractive – if your cash is paying nothing, at least with premium bonds you could win something.
“The absolute security premium bonds provide is of key importance to savers and investors alike,” he said.
Jill Waters, retail director at NS&I, said: “Over the last 60 years, premium bonds have become a part of the fabric of British life, with almost a third of Britons now holding the product. When they were first introduced in 1956 they changed how the nation saved and, over time, have increasingly become a part of many savers’ portfolios.”
