Celebrating 60 years of ERNIE

Posted on November 1, 2016

Long before the Lottery Premium Bonds were considered the route to riches.

It’s 60 years this week since they were launched as a savings product in the UK, and this November will see ERNIE make the 350th jackpot winner.

They are something I like to use as part of a total planning portfolio for clients and they’re not quite the random flutter many would think they are. In our Annual Review Meetings with my clients they have often had a quite a few wins throughout the year and often make more on the Tax Free Prizes than their money has made in the bank – and who does not like a flutter that pays off!

They are considered by many as a good alternative to savings, but I wouldn’t suggest them as a long term investment. Now purchased for a minimum of £100, they don't pay a regular dividend - instead, all of the interest accrued on the value of the bonds is put into a prize fund, with lucky winners of a monthly lottery scooping prizes of up to £1m. In total; more than 21 million people currently hold over £63 billion worth of Premium Bonds.

The bonds are operated by the Treasury and they calculate to the prize money based upon 1.25% of the assets in Premium Bonds, which is much higher than that of many other savings products, including many Cash ISAs.

Those who take part in the scheme can also cash in their bonds to receive their money back within a couple of weeks.

Premium Bonds are a national institution and it’s a fact that more people hold Premium Bonds than save into cash ISAs and we would recommended them for a few reasons; but mainly because the prizes are tax free and they are 100% guaranteed by the Treasury, where as banks are not.

For example for clients with £60,000 in a building society earning very little interest, we often split the money 50/50 – this means they get the known interest rate offered by the bank, but also the option for a tax free flutter.

If a client has more money on deposit, say £125,000, I would suggest £50,000 in Premium Bonds and £75,000 in the bank as this is the maximum that can be guaranteed. Unless more should be invested for the long term to beat inflation.

Many of my Premium Bond clients have small £25 treat wins, but some have bigger gains. I have also have dealt with bigger National Lottery winners, but that of course is a lucky ticket not part of a managed investment portfolio.

The investment in Bonds immediately caught the imagination of the British public, so much so that by the end of their first day on sale, £5 million worth of Premium Bonds had been sold.

In 1956, the maximum holding limit stood at £500 but in 2016, that figure has had a couple of extra noughts added to it – so now stands at £50,000.

In all, Premium Bonds have come a long way since that momentous November day: the average holding of jackpot winners is £18,380 (and one jackpot winner had only £17 invested); and each £1 Bond has an equal chance of winning, regardless of when or where it was bought. Over 89% of eligible Bonds have been bought since the year 2000. So even though Premium Bonds have been on sale for over 50 years, this is why newer Bonds seem to win more frequently.

If you want to consider Premium Bonds as part of your portfolio call me to discuss this further and to steal the line from the Lottery, don’t forget ‘it could be you’!!

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

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