Premium Bonds are an investment run by the British Government as part of the National Savings and Investments organisation. Premium Bonds do not pay interest, but instead there is a monthly draw held every month, with one entry for every ticket you own.

Once you purchase Premium Bonds for the first time, you will be given a holders number, which is used for any future purchases so that the new bonds are assigned to your account, and can be used to check to see if your numbers have won.

Who Can Buy Them?

Anyone aged over sixteen can buy Premium Bonds on their own behalf. Children under the age of sixteen can have bonds bought for them by parents, grandparents, great grandparents and guardians.

How Many Do I Have to Buy?

Each Premium Bond costs £1, but you have to but a minimum of one hundred, making the minimum purchase £100, unless you choose to invest on a regular basis by monthly standing order, for which the minimum purchase is fifty bonds, or £50. Originally, you were able to buy a minimum of one Premium Bond, but this has gradually increased to the current level, and may increase again in the future.

How Many Can I Own?

The maximum number of Premium Bonds you can currently own is thirty thousand, or an investment of £30,000. This amount has increased in the past, and may again in the future.

Where Can I Buy Them?

Premium Bonds can be bought online from the NS&I website, or alternatively, you can pick up an application form from a Post Office, and post your Premium Bond application off to them.

Premium Bonds have to be held for a full calendar month before they are entered into a draw, so they will not be entered in the first draw after purchase.

What Can I Win?

Premium Bond prizes are drawn once per month. The vast majority of the payouts are for the lowest prize of £25. In November 2011, 1,751,473 prizes were drawn, of which 1,685,340 were for the £25 prize. The number of prizes can change, as it is based on the total prize fund and the number of Premium Bonds issued.

Other than the £25 prize, there are payouts of £50, £100, £500, £1,000, £5,000, £10,000, £25,000, £50,000, £100,000 and £1,000,000. There is only one million pound prize drawn every month, and the higher value prizes are of course much rarer than those for lower amounts. The majority of the prize fund, at 89%, was paid out in prizes of £100 and less, again for November 2011.

Any prizes won are also tax-free.

How Can I Find Out if I Have Won?

National Savings & Investments WebsiteCredit: NS&IAlthough you should automatically receive your cheque through the post of you win, or alternatively you can have winnings paid directly into your bank account, you can also check online to see if any of your tickets have won, as it is always possible for the post to go astray, especially if your address has changed from the one you originally registered with.

Go the the National Savings & Investments website, and on the home page is a little box marked Premium Bonds where you can enter your holders number. Entering your holders number allows all the Premium Bonds held by that account to be checked, rather than having to check them individually.

Type your holders number into the box and click "Go" and the system will check to see if you have won. On the page that opens up, you can also check to see if you have one in the previous six months worth of draws.

The prize checker is usually updated by the third working day (Monday to Friday) of the month.

Can I Cash Them In?

Yes, Premium Bonds can be cashed in at any time for the amount they were purchased for. Therefore, a £1 Premium Bond will still be worth £1 when it is cashed in. The real value of the investment will likely be reduced by inflation, as no interest is paid. Any winnings will decrease or even remove the inflation loss, but winning is not guaranteed.

How Are Premium Bonds Better Than The National Lottery?

Premium Bonds are a better investment than the National Lottery. In fact, Premium Bonds are an investment, whilst the lottery is simply gambling.

If you invest £100 in Premium Bonds for a year, at the end of that year you will, at the very least, still have your original investment. It is unlikely, but possible, that you could have more, ans the odds per bond are 1 in 24,000. This applies to all one hundred bonds in that original investment. Any prize won is more likely to be a lower value one, naturally, but could be higher.

If you buy £100 of lottery tickets for the main National Lottery Lotto draw, the minimum you could have left is nothing. In other words, it is quite possible to lose all your original investment. The overall odds of winning any prize on the lottery are 1 in 54, so you will probably win something, although it is likely that will only be £10.

Premium Bonds guarantee your original investment and will be entered into every monthly draw until you cash in your bonds. Odds of winning in an individual draw are lower, but the same bond will be entered again and again. There is always the chance of winning a big prize.

Lotto tickets do not guarantee your original investment, you can quite easily lose it all. Tickets are only entered in one draw, after which they become worthless. There is also always the chance of winning a big prize.

If you are spending money on the National Lottery every week, no matter what part of the lottery you are spending it on, whether it be draws or scratchcards, it can make more sense to actually invest that same money in Premium Bonds instead.

Prizes drawn have definite winners; you do not have to match randomly drawn numbers, but instead a particular Premium Bond is drawn randomly, using a machine called ERNIE (Electronic Random Number Indicator Equipment), to receive a prize. Not all prizes are claimed, for one reason or another, often because the original holder has moved or died.

Winning is of course not guaranteed, as the prizes are assigned randomly. You may never win a penny, but at least you will still have your original investment.