Premium bonds yield more prizes

The good news for the 23 million holders of premium bonds, Britain's original (and better) lottery, is that there are to be more opportunities to win from June. The bad news is that the average value of prizes will fall.

The number of prizes will increase to around 430,000 from 350,000. The odds of winning the pounds 1m jackpot in any monthly draw will still be 1 in 8 million for someone with pounds 1,000 of bonds (1 in 80 million if you have pounds 100 of bonds and so on).

But there will now be more pounds 50 prizes (the lowest prize) and fewer bigger ones. Between the pounds 1m and pounds 50 there is a range of pounds 50,000, pounds 25,000, pounds 10,000, pounds 5,000, pounds 1,000, pounds 500 and pounds 100 prizes.

National Savings says the changes reflect its research, which found that bondholders would prefer to have the chance of winning more often, even if the average value of the prizes was slightly lower.

The owner of pounds 1,000 of bonds will, from June, have a 1 in 20 chance of winning something in every monthly draw, compared with a 1 in 23 chance. But that still means most smaller bondholders will not win anything from year to year.

Each year prizes make up 4.75 per cent of the total value of all bonds (and this will remain the case), so a pounds 1,000 bondholder who wins even a pounds 50 prize every year is doing better than average.

The effect of the changes will be most noticeable for those with large numbers of bonds. There are 85,000 people with the pounds 20,000 maximum.

Currently they will typically win seven pounds 50 prizes and four pounds 100 prizes every year, a total of 11 prizes worth pounds 750.

After the change in the prize structure is put into place they might expect to win 11 pounds 50 prizes but just two pounds 100 prizes a year, two more prizes in total but still worth pounds 750. That pounds 750 of prizes equates to a typical return of 3.75 per cent, lower than the 4.75 per cent "average" because most people do not win the bigger prizes.

Premium bonds can be seen as a genuine investment as well as a flutter. The big pull is the possibility of winning the pounds 1m. But, even with typical luck, the returns for someone with a fair holding from winning a regular stream of monthly prizes can seem reasonable, particularly for higher- rate taxpayers. Premium bonds earn no interest as such but prizes are tax-free and you can always get your original money back at eight days' notice. You can invest as little as pounds 100.

When you buy bonds, which you can do at the Post Office, you have to wait a full calendar month before being entered in the draws, which are made by Ernie, the premium bonds computer.

That means if you buy now, your first chance of winning will be in the draw at the beginning of May. Given this one calendar month qualifying period, to get the best use of your money you should buy at the end of the month.

There have now been 36 pounds 1m jackpots doled out to premium bondholders, the latest to someone in Surrey who held a total of pounds 10,100 of bonds.

If you win the jackpot, or pounds 100,000 (as four other people have done this month), you should receive a visit in person from National Savings to inform you of your good fortune. Winners of pounds 50,000, pounds 25,000 and pounds 10,000 prizes will be told by recorded delivery letter and are required to fill in a claim form. Prizes up to pounds 1,000 are sent by post.

National Savings still has millions of pounds of unpaid prizes, largely because people move home and do not tell National Savings of their new address.

To check whether you are owed money (note, there are no unclaimed pounds 1m jackpots), write with details of your numbers to Premium Bonds, National Savings, Blackpool, FY3 9YP.

If you have lost your bond certificates National Savings can also provide you with free replacements.

Again, you need to write with details of the name and address in which the bonds might have been registered.