6 Reasons Why You Should Buy Government Bonds

Government bonds also known as premium bonds are a popular way to save your money with a twist. They are offered by NS & I (National savings and investment), a state-owned non-ministerial government agency that provides or sells savings and investment products to the public.

NS & I was started in 1861 and has survived two world wars and many recessions. It has over 25 million customers and is probably the agency with the most customers in the UK. They sell products such as premium bonds, income bonds, savings accounts, and IOSA accounts.

So what are premium bonds?

Premium bonds are government bonds; your opportunity to loan out money to the government. They are a savings instrument known to be very safe because it is 100% backed by her majesty’s treasury.

Although you will find a return on investment of about 1.4% on the website, this interest is not certain; the guaranteed rate of return is the exact money you deposited. 

Government bonds as premium bonds

It is more of a savings instrument than an investment instrument because you get everything you put into it without interest. However, they have an interesting attribute of entering you into a prize draw of between £25 and £1million every month. This means you stand a chance of becoming an overnight millionaire.

You can purchase government bonds with as little as £25 and as much as £50,000; you cannot buy more than £50,000.

What are your chances of winning this million pounds?

Your chances of winning money from the premium bonds you have purchased are about a ratio of 1:24000; the odds are quite slim!

What does the 1.4% rate of return on the website mean?

What the 1.4% means is that if you put £1000 into a premium bonds account, you would have to keep it in that account for two years to win £25. That is basically what the 1.4% interest rate means. 

However, there is a chance that you might keep that £1000 in premium bonds for two years and still not win anything, but people do not mind because it is safe.

Although I would not say the risk is zero, it is significantly low because your capital is guaranteed.

Is the prize draw win tax-free?

You may be wondering whether you have to pay tax on your million pounds lucky win; the answer is NO! your winnings are tax-free, all the money belongs to you. 

You get your money paid into the account you have put down into NS&I during registration.

How do you buy your premium bonds?

NS&I has advised customers to do all transactions online which means you can purchase premium and income bonds right from the comfort of your home. Just visit the NS&I website to buy your premium bonds.

How is premium bond different from the lottery?

In premium bonds, you do not lose any money. That is not the case with the lottery. If you play the lottery and do not win, you lose your money, but premium bonds offer a free entry into a monthly prize draw.

Also, you can lose your lottery win after a while if you do not come to claim it, but that does not happen with the premium bonds.

Moreover, when you buy premium bonds, each pound is assigned a number, so if you buy 20,000 pounds worth of premium bonds, that increases your odds because you get entered into the draw 20,000 times.

  1. It Is Safe

If you are worried about how safe it is, you can rest assured that you will always get all your money back because premium bonds are 100% backed by her majesty’s treasury. 

It is safe because even if you do not win in the prize draw, your total capital will be paid whenever you want to withdraw the money you saved.

2. Easy To Buy

Since the pandemic hit in 2020, the NS&I has made it easy for people to buy premium bonds in the comfort of their homes; you can easily access the NS& I online platform and register for free.

3. No-Penalty Exit.

You can decide to bow out of this product anytime without getting charged or penalized; meaning that there is no specific duration you have to save on premium bonds. Your decision to withdraw your money at any time would not attract penalties.

If you do not want to put your money into stocks and shares because it might be harder to withdraw it when you need it, premium bonds are your best option. 

This is why I recommend premium bonds to people who are saving up to buy a property or buy something that will require them to pull out their money in less than five years. 

4. Minimum of just £25

You do not need to have a lot of money to buy premium bonds; you can buy for as little as £25. 

5. Monthly prize draw

When you buy premium bonds, you are qualified for a monthly prize draw where you can win between £25 and £1million.

6. Tax Free-Winnings

Your winnings are completely tax-free.

  1. They are interest-free

The 1.4% interest rate is not guaranteed. If you put £50,000 in a premium bonds account for two years, you might have access to just that £50,000 without interest.

Government bonds are not investment products. They are a place for you to save money that you might in a few months or years.

2. Real-time value reduces

If there is high inflation, your money actually reduces in value because there is no interest or growth on your money. 

If you put in £50,000 for two years, at the end of two years, you will get £50,000 out of that account, but if there has been a high inflation rate in the period, your £50,000 will not buy what it could buy at the time when you put it into the premium bonds account. The real-time value of your money reduces.

In summary…

If you weigh the benefits against the disadvantages, you will agree that the advantages outweigh the disadvantages. That is why it is presently the most popular product in the UK. Many people put their money into it.

In addition to premium bonds, NS&I also offers income bonds that have a bit of interest paid monthly and can be considered a low-risk low-yield product and could be an alternative for you.

I hope you enjoyed reading.

Till next time.


Ronke O.

Published by ronkeodewumi

I am a Chartered Accountant (ACMA, CGMA) and seasoned Management Consultant with about 16 years of experience driving the delivery of strategic solutions to complex problems of global firms. Through my blog, youtube channel, social media, tailored courses and downloadable material, I share information, resources and tips to help you manage your money better, grow your business, progress in your career, thrive in difficult times and create a life that is safe from failure, while being the best version of yourself. You will also find here links to my youtube videos where I share more nuggets to help you achieve and live your dream life. I am based in London, United Kingdom and always happy to connect with you via email (ronkeodewumi@gmail.com), social media or my contact page here.

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