NS&I Premium Bonds - The easiest way to become a millionaire?

hi i'm damian and today i'm going to be

talking about national savings and

investments and specifically premium


let's take a look at your chances of

winning and whether compared to other

investments they're worth it

i just want to say thanks to peter

savile for suggesting our cover nsni

no messing about let's get to it the

first thing we need to understand is who

are ns and i

national savings and investments can

trace its history back to 1861.

they offer a range of savings and

investment accounts and estate owned

meaning they are controlled and operated

by the government they have a huge

150 billion under management and the

idea here is that the government

guarantees any of the investments that

you make in these products

meaning these investments are as secure

as you can get the government can then

use this part of cash whenever they like

to pay for things

like covid19 ns and i currently fund

about nine percent of the total uk debt

making it a massive proportion of the

overall uk wallet

over half of all the funds invested with

the nsni are stored in their flagship


premium bonds with a total of around 91

billion invested which is up from 70

billion two years ago

but what are premium bonds to put it

simply it's a lottery

each bond you buy for a pound is one

ticket for the lottery

the maximum amount of tickets anyone can

have is currently fifty thousand pounds


prize draws are monthly and prizes range

from twenty five pound all the way up to

a million

but this lottery acts a little

differently to the national and euro


in those lotteries whenever you buy a

ticket if you don't win your money's


with premium bonds it acts like a

savings account so for every one pound

bond you buy as long as you don't cash

it in that's entered into the draw

every single month and you can sell your

one pound bonds and take them out

whenever you like

i've got a golden ticket

i wasn't really sure whether to use the

cartman scene there or the original

charlie and the

i've chocolate a golden ticket

but i went with cartman i guess now i've

just shown both anyway

moving on 22 million people have premium

bonds with a total value of 91 billion


let's just stop and think about that for

a second for a financial product that's

only available in the uk to have 22

million people using it when the uk

population is only 60 million people

that means one in three people have

premium bonds in the uk

and not just one or two the average

holding is around 4 100 pounds

90 billion divided by 22 million that

officially makes them the uk's most

popular investment

but popular don't pay the bills so let's

figure out if they're worth it

in order to come to a decision on

whether premium bonds are worth it or

not we need to dissect the reasons that

they've historically been so popular

and see if they're still relevant today

let's start with

security this is a government-backed

investment meaning you can always get

out exactly what you put in

from an investing perspective it doesn't

get much safer and this is why a lot of

people love putting their cash here

but on balance in the modern world that

we live in all banks and building

societies are protected by the financial

services compensation scheme

meaning if the bank went under the

government guarantees to give you back

your funds up to the tune of 85 000


you can only put 50 000 pounds into

premium bonds so to put it simply you

can store more money in a bank account

securely than you can in premium bonds

which makes the security element of the

decision kind of null and void

so let's move on to the next one tax

incentives one of the best things about

winning money

is that it's tax-free historically this

was a massive plus for premium bonds

as even a basic rate taxpayer could

expect to pay 20 on any interest they

receive on cash

eating away at the total return that

they make but any amount of money that

you win with premium bonds you don't pay

a single penny in tax

sounds great right but in april 2016 the

government introduced the personal

savings allowance

allowing all lower rate taxpayers to

receive up to a thousand pounds a year

in interest

tax-free with the current best high

interest savings account available

that is around 65 to 70k in cash savings

that you could have and the gains would

be tax-free you need to be winning about

84 pounds a month in premium bonds in

order to hit this level

but even with 50 000 pounds invested the

chances of doing this in a year are only

about 5.6 percent

if you're a higher rate taxpayer earning

over 150k a year

then you don't get a personal savings

allowance and for that reason the

tax-free incentive of a premium bond

might be attractive

but for 95 of people watching this video

the introduction of the personal savings

allowance has really leveled the playing

field and removed the advantage away

from premium bonds

and the tax incentive only really

matters if you're a high earner or

you've already used up the personal

savings allowance elsewhere

sorry premium bonds next the returns

the current advertised rate of return is

one point four percent

meaning of the total pot one point four

percent of it is paid out in price funds

each year

so that means if you have a hundred

pounds invested in premium bonds

theoretically you should expect to see

one pound forty a year in returns

the problem is there are no one pound 40

prizes the minimum price is 25 pounds

so what that means is for someone to win

25 pounds a lot of other people have to

lose their 1 pound 40.

another way to explain this is for every

20 people that have 100 pounds in

premium bonds over the course of a year

19 of them will earn nothing so that one

can receive 25 pounds

and even grim a thought is how many

people have to lose their 1 pound 40s in

order to pay out the 2 1 million

prizes literally thousands of people

will win nothing a month so that two

people can win a million pounds

the problem is while they can advertise

a rate of return in reality it all comes

down to luck

a person with a hundred pounds invested

could theoretically win the top prize

and a person with 50k could hold premium

bonds for 60 years and never win


let's look at the odds in a little more

detail the table on screen shows the

amount of prizes paid out at each

funding level

and the chances of winning those prizes

if you have one ticket for one month

you'll notice that 90 of all of the

prizes are in the lower category

of 25 50 and 100 pounds and ultimately

the odds of winning any prize in one

month are pretty poor

with the chances of you winning a prize

being one in 24 500

with the chances of you hitting a

million sitting at 1 in 45 billion

it's only really once you have multiple

bonds invested over a long period of

time that the odds become more


but remember every bond you buy enters

the draw each and every month

it's not like you buy it and then it's

gone so of course it's possible to build

up your holdings over time and increase

your chances of winning as you go

for example someone with a thousand

pound invested for a month has a 1 in 25

chance of winning a prize

or a 1 in 45 million chance of winning

the big prize and if you had this

thousand pound in bonds and held it for

five years then the odds of winning a

million dropped to one in 775

000 so you're telling me there's a


money supermarket has a really useful

calculator we can play around with the

amounts and timelines

so you can see what the odds are of

winning just enter the amount the time

period and then click the green box to

see the odds

just remember though this is all based

on average look it's easy to whack in

50k and put five years

and think sweet have a one in fifteen

thousand chance of winning it big

just remember you could have that 50k in

premium bonds for 60 years and never win

a single thing

you could put the same 50k into fixed

income investments such as corporate


and get a much more reliable and

predictable income or you could invest

the 50k into high yielding dividend


and probably receive an expected income

of around 2 000 pounds a year

which knocks the socks off the expected

return of premium bonds

not to mention that the original one

pound doesn't grow in value so if you're

not winning anything inflation

decreases the spending power of your

pounds over time

inflation the increasing price of goods

and services over time anywhere you

slice it the return on premium bonds is

pretty terrible

there's plenty of other places that you

could invest for a much better return

so the tax incentive is basically null

and void unless you earn over 150k or

strike it very lucky

the security element is outdated and is

now standard with all uk banks protected

by the financial services compensation


and the returns are poor and

unpredictable at the low end

and seemingly impossible at the high end

it doesn't look good does it

so why do people continue to use them

and can they ever be justified as an


i think they can so much so i use them


but in the face of everything i've just

said how could that be the case why

would i use such a poor investment

let's take a look first of all the

reason that such a high proportion of

the uk population uses premium bonds

can be understood through gambling

psychology we all know the house always


but gambling is still as popular as ever

just take the owner of bet 365 denise


who paid herself a modest 323 million

last year

wonder what the student loan deduction

was on that a cambridge university study

into the psychology of why people with

gambling problems continue to gamble

highlighted two key triggers for the

behaviour near misses

and personal choice some near misses


in traditional gambling like the lottery

this is looking at your ticket and

seeing the number 23 came up when you

picked 24.

ah so close i nearly picked the number

23 as well i picked 24.

in reality no you didn't in premium

bonds 95

of all other prizes are made up of lower

end prizes millions and near misses

as each bond has an equal chance of

winning the million pound prize as the


a 25 pound win feels so close to a

million it's almost like you got picked

out of the hat at the wrong time and if

your ticket had just been next

maybe you'd have won the million so i

might as well see what happens next

month because this month i was so close

then there's personal choice this is the

belief of gamblers that they somehow


influence over the game a study done in

las vegas found that if you took a

gambler to a roulette table and said to

them that they could put the ball on

themselves instead of the croupier

the gambler would bet more money because

they believed that they were in control

of the result

a more relatable example is the fact

that most people don't trust the lucky


and always use the same lottery numbers

every single week this is your personal


this is your element of control does

anyone want to play a game that they

feel that they don't have control over

the personal choice characteristic

manifests itself in my opinion through

the security element the premium bonds


the fact that you can withdraw your

funds at any time gives you the

perception of control

you reassure yourself with the notion of

well if i'm not happy with the results

i'll just take my money out

the reality is you find it tough to do

that because the one week you don't play

the lottery what happens if your numbers

come up

the reason one third of the uk

population has on average four thousand

pounds invested in premium bonds is

because no one ever takes their money


demonstrated by the fact that two years

ago the average holding was three

thousand one hundred

so not only do people not take their

money out they increase how much they


the logic there is okay i'm not winning

at the minute so i'll have more money

because that improves my chances of


it's these emotional triggers that make

premium bond so popular

it's a lot sexier waking up one day and

seeing that you've won 25 pounds

versus checking your bank statement and

seeing the same amount of interest going


every month from a fixed income

investment that you purchased

but we can also never underestimate the

power of what if one of my favorite

things to do on a friday afternoon at

work is sit chatting to my colleagues

about what we do if we won the lottery

which normally sent us around first

class fights to vegas and buying lots of

cheap terrorist houses in manchester

satellite towns

such as berry we all like to dream and

premium bonds are an investment for


and this is where i feel the

justification for using them comes in

leave all the statistics odds and

probabilities at the door

everyone has a little room in their life

for something that might just change it


the national lottery is a perfect

example of this while it might not be

the tv spectacle it once was

shout out to mystic meg okay we

know seventy percent of uk adults play

the lottery every week

because we all know my thoughts are

rather than playing the lottery

set up a regular direct debit into

premium bonds each month that's what i


i have 30 pound a month going into

premium bonds a fraction of what i save

on a monthly basis

i have a chance of winning a million

quid but most importantly

you haven't just thrown the crit down

the drain


the perfect way to build up an emergency

fund in my opinion while still

scratching that very

human itch of dreaming of hitting the

big time let's face it statistically

speaking premium bonds are not going to

be a good investment

and they're probably not going to make

you rich for that i'd use other types of

asset classes

for an overview of the options that are

available just click here

or maybe it's here it's going to be one

of the two so just click that

i personally use premium bonds as a

place to build a rainy day fund and i

just like the fact that i might hit the

big time

one last fact for you turns out 85 of

people watching this video won't be


that's like seeing there's a party going

on on the other side of the road and

rather than going over and knocking on

the door so you can go inside

you just stand on the garden and look

through the window don't stand on the


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