1. What is the Premium Bond Calculator?

The Premium Bond Calculator estimates expected annual winnings from premium bond investments based on the current prize fund rate. It helps investors understand the potential returns from their premium bond holdings.

2. How Does the Calculator Work?

The calculator uses the premium bond expected winnings formula:

Where:

• \( E \) — Expected annual winnings (GBP)
• \( \text{Holdings} \) — Amount invested in premium bonds (GBP)
• \( \text{Prize Fund Rate} \) — Annual prize fund rate (expressed as decimal)

Explanation: The formula calculates the mathematical expectation of annual winnings by multiplying the total investment by the prize fund rate.

3. Importance of Expected Winnings Calculation

Details: Calculating expected winnings helps investors compare premium bonds with other savings and investment options, providing a realistic expectation of potential returns.

4. Using the Calculator

Tips: Enter the total amount invested in premium bonds in GBP and the current annual prize fund rate as a decimal (e.g., 0.0125 for 1.25%). All values must be valid (holdings > 0, rate between 0-1).

5. Frequently Asked Questions (FAQ)

Q1: What are premium bonds?
A: Premium bonds are a savings product where instead of earning interest, holders are entered into monthly prize draws with the chance to win tax-free prizes.

Q2: Is the expected winnings guaranteed?
A: No, this is a statistical expectation. Actual winnings may vary as premium bonds operate like a lottery where prizes are randomly distributed.

Q3: What is a typical prize fund rate?
A: Prize fund rates typically range from 1% to 4% annually, but vary over time and are set by National Savings and Investments (NS&I).

Q4: Are premium bond winnings taxable?
A: Premium bond prizes are tax-free in the UK, making them attractive to higher-rate taxpayers.

Q5: What's the minimum and maximum investment?
A: Minimum investment is usually £25, with a maximum holding limit of £50,000 per person.