Premium bonds

The Premium Bond prize fund rate is increasing from 3.15 percent p.a. to 3.40 percent p.a. tax-free, from January 2007. The rate for December 2006 will rise to 3.55 percent p.a tax-free; however this is due to the three extra £1 million jackpot prizes.

The odds of winning a prize will stay at 24,000 to 1, meaning that someone with the maximum investment in Premium Bonds of £30,000 could, with average luck, win 15 tax-free prizes a year.

The popularity of Premium Bonds has grown dramatically over the past five years as the amount invested has doubled to over £24 billion.

ERNIE (Electronic Random Number Indicator Equipment) which still picks the winning numbers, took 10 days in 1957 to carry out the first draw. The machine now takes a mere 6 hours. A new ERNIE was built in 1973 to cope with the increasing amount of Premium Bond numbers. The latest model was built in 1988, although the generation of winning numbers is carried out in exactly the same way.

Premium Bonds are National Savings biggest seller. Each month one lucky bondholder wins the £1 million monthly jackpot.

Although the big prize to be won may not match up to lotto you have to remember that unlike the Lottery, Premium Bond holders do not lose their stake after every draw. Your bonds automatically go into the next draw whether you win or lose - as long as you do not sell them.

You can cash in your bonds at any time so the only gamble you take is the loss of interest your money could have earned elsewhere.

But it all comes down to the luck of the draw. You could win more and our could win less.

Bond facts: