Premium Bonds are issued by National Savings and Investments or NS&I (on behalf of the Government). You can invest anything from £100 upwards to £30,000 and for every £1 you invest you’ll be given a number.

Instead of receiving interest or dividends, you have the chance to win tax-free cash prizes in a monthly draw. The prizes range from £50 up to £1 million and in June 2008, the chances of winning a prize with a single bond in a single draw was 1 in 22,000.

Unlike other lotteries, your money is safe - you’re only gambling with the interest you could have earned in, say, a savings account - you do not gamble with your capital. And when you want to cash them in you can, you’ll get back exactly what you put in.

Pros 

• The tax man won’t get a slice of any prizes.
• Nobody’s running off with your money as it’s backed by the Treasury.
• You can get back exactly what you put in at any time.
• It’s £100 minimum investment each time (£50 if paying by standing order).
• Buying is simple – over the internet, phone or in the Post Office.

Cons

• It really is a lottery and not everyone will win.
• If you don’t win before you cash them in the spending power of your money might be less than when you invested due to the effects of inflation.

Unless all your numbers come up, they’re not likely to make you rich, but the more you have, the better your chance of winning. And because your money will be safe from the taxman, they’re worth considering as part of your overall savings. You can get your money back at any time – but you need to remember your money won’t be protected against the effects of inflation. They add a bit of fun into investing, which lets face it, not many other products do.

So, if you want the chance to win big tax-free prizes every month (there are over a million prizes) and you’re looking for an easy way to invest small amounts where you can cash in if you need to, Premium Bonds are worth a look. But if you’re looking for a regular income you’ll need to look elsewhere.

Premium Bonds are one of the easiest products to buy. You can buy them online at www.nsandi.com, over the phone or at any Post Office.

Family bonding - Premium bonds can make a good gift for a child or grandchild.

Money back - Premium bonds offer regular tax free prizes and you are guaranteed to be able to get your money back at any time – so they could be useful in any portfolio.

Keep in touch - When you move always tell 'ERNIE'.