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New £50,000 Premium Bond investment limit

Investors can put up an additional £10,000 on last year's limit for the chance to win monthly tax-free prizes of up to £1 million.

The maximum amount that you can put into National Savings & Investments (N&SI) Premium Bonds will be raised to £50,000 from 1 June, up from £40,000, and follows last year's increase in the maximum amount from £30,000 to £40,000.

Premium Bonds offer a chance to win more than 2m tax-free prizes of between £25 and £100,000, and two £1m prizes, in a monthly draw. They provide a high degree of capital security because NS&I is backed by HM Treasury.

Premium bonds are useful for investors who have used up their annual individual savings account (Isa) allowance, which is currently £15,240, and part or all of their annual £40,000 pensions allowance. They enable investors to set aside some money in a tax efficient way, says Patrick Connolly, certified financial planner at Chase de Vere, as unlike ordinary bank accounts there is no tax on the sums you invest in premium bonds. This makes them useful for higher and additional rate tax payers

They also offer the potential to win more than you might generate in interest on cash.

If you need a short-term place to put cash, for example because you have received a windfall or are holding some aside to pay a tax bill, then you could hold it in Premium Bonds for a few months, adds Danny Cox, chartered financial planner at Hargreaves Lansdown.

The minimum amount you can put into them is £100.

Premium bonds are not suitable if you are looking for a regular income or guaranteed returns, and do not pay any interest so are subject to inflation erosion. However, with current low interest rates Mr Connolly says you are not giving up too much.

You also have to be invested for a month before you qualify for the prize draw.

For these reasons you should prioritise your Isa allowance first.

Premium bonds are not instant access: when you cash in online or by phone you get your payment within three working days, and when you do this by post it takes up to eight working days.

You cannot gift them to people with the exception of children, grandchildren and great grandchildren. From the 1 June parents and legal guardians will be able to buy Premium Bonds for their children under 16 online or by phone. Previously they could only buy them by post or at a Post Office branch.

 

How prizes are allocated

N&SI splits Premium Bond prizes into three value bands - higher, medium and lower - and allocates a percentage share of the monthly prize fund to each band.

For example, with the higher value band it pays two £1m prizes each month and then divides the balance of the prize fund share allocated to the higher value band equally among the remaining prize values.

 

Prize draw allocation for July 2015 draw

Prize bankPrize value (£)Number of prizes
Higher value (7% of prize fund)1m2
100,0005
50,0009
25,00018
10,00047
5,00093
Medium value (5% of prize fund)1,0001,238
5003,714
Lower value (88% of prize fund)10016,960
5016,960
252,078,099
Total value for July 2015 (estimated)61.9m2,117,145

Source: N&SI