how do premium bonds work

Premium Bonds work as a savings product where instead of earning interest, each £1 bond acts as an entry into a monthly prize draw with the chance to win tax-free cash prizes ranging from £25 to £1 million. The more bonds a person holds, the greater their chances of winning. The government, through National Savings and Investments (NS&I), guarantees the safety of the invested capital and promises to buy the bonds back at their original price upon request. Each month, prizes are awarded randomly using a machine called ERNIE, which generates winning bond numbers. Although there is no guaranteed return, the prizes awarded come from the interest earned on the total pool of bonds. The minimum investment is £25, with a maximum holding limit of £50,000. All prizes are tax-free, making it an attractive option for risk-free saving with the possibility of a lottery-style reward.