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DP MONEY: Savers put their trust in Ernie; As the individual Premium Bond allocation rises to pounds 30,000, Jane Hall looks at why savers are putting their trust in Ernie.

Byline: Jane Hall

BARELY a month passes when Carol Morrison doesn't receive a cheque in the post.

The sums may not be huge - normally pounds 50 or pounds 100 - but for Carol they are welcome additions to her income.

The 37-year-old has received hundreds of pounds in this way over the past four years and is hopeful that one day she will really hit the jackpot.

Carol is one of the millions of people who have invested in PremiumBonds.

She started to sink her spare cash into them when interest rates began dropping. ``Like most people, I had a few Premium Bonds dating back to the 1960s which I had been given as Christening presents and the like. But four years ago,I decided to invest more heavily in them as the savings rates being offered by the banks and building societies are piddling.

``My mum and dadhavealsoinvested in Premium Bonds and we have a competition every month to see who wins the most money. I get a real thrill when I see the envelope drop through the letterbox.''

Carol recently had to sell half her Premium Bond holding when she moved to her new home. But next month she hopes to plough some more cash back into the prize draw scheme.

``I was really annoyed when I had to sell some of my stock as it cuts down your chance of winning. It was really easy to get back my money, however. All I had to do was fill in a form and a week later I had the cash. It was quicker than getting the money out of some savings accounts.

``I do have some money in a high street account for emergencies, but I don't see the point of leaving the bulk of my savings there. If you want to take the boring route and leave money somewhere paying a minimal amount of interest, then that's up to you.

``But with Premium Bonds, it's a win win situation. And there is of course always that chance you will win the big one.''

A growing number of people hit by both the lowest interest rates for five decades and an uncertain stock market,arefollowing in Carol's footsteps and putting their faith in Blackpool-basedErnie ( electronic random number indicator equipment), who has been picking the winning Premium Bond numbers every month for nearly 47 years.

Investors have poured a staggering pounds 2bn into PremiumBonds so far this year. According to National Savings and Investments (NS&I) - the Treasury's retail bank - sales have been averaging around pounds 550m per month since the turn of the year,compared with a monthly average of pounds 334m over the same period in 2002.

It is expected the total invested will burst through the pounds 20bn barrier by the end of May as sales surge following NS&I's recent decision to raise the maximum holding per person from pounds 20,000 to pounds 30,000 - the first time it has been upped in adecade.

The attraction of PremiumBonds in obvious; they are a risk-free gamble. Not only do they offer the chance to win a tax-free sum every month of between pounds 50 and pounds 1m,but they can be cashed in at any time and have 100pc capital security because they arebackedby theTreasury.

And with meagre returns on bank and building society accounts, the ``opportunity cost'' of holding Premium Bonds - that is, the interest that could have been earned had the money been put on deposit - is negligible. As prizes are tax-free, they are particularly attractive for higher rate taxpayers.

Gill Cattanach, NS&I's commercial director, describes Premium Bonds as ``one of Britain's financial services success stories''.

Despite an inauspicious start in 1956 - there was opposition to them from both MPs and the Church - both Premium Bonds and Ernie havebecomeamuchloved institution.

As Gill says: ``The combination of 100pc security that National Savings and Investments offers and the chance to win some of the hundreds of thousands of tax-free prizes we give away every month, including the prospect of winning the pounds 1m monthly jackpot, means Premium Bonds have captured the imagination of British savers and investors and are extremely popular and in great demand.

``Many of the 350,000 customers who currently have the maximum holding of pounds 20,000 have asked us to increase the limit on the amount they can invest and say they would invest more if the maximum was higher, and I am delighted that customers will now be able to do so.''

Each and every Premium Bond entered into the draw has an equal chance of being chosen. But while the maximum you can invest has been raised, the odds on winning a prize have lengthened.

From June 1 the prize rate - how much of the amount invested that is paid out - is to be reduced from 2.4pc to 2.25pc(equivalent to 2.81pcfor a basic rate tax-payer and 3.75pcfor a higher rate tax-payer.) This means the odds on winning have fallen from 28,500:1 to 30,000:1.

Those investors who currently hold 20,000 pounds 1bonds have an average chance of winning eight times a year. But a maximum holding of pounds 30,000 would give them an average chance of winning 12 tax-free prizes of anything from pounds 50 to the pounds 1m jackpot.

Premium Bonds can be bought either by completing an application form available at any Post Office branch and buying them over the counter or posting to NS&I; by downloading an application form from the NS&I website at www.nsandi.comor calling 0845-9645000.

CAPTION(S):

WINNING STREAK: Carol Morrison regularly enjoys regular pay-outs fromErnie,and dreams that one day she could be a millionaire; `SUCCESSSTORY': NS&I's commercial; director Gill Cattanach
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Title Annotation:Features
Publication:Daily Post (Liverpool, England)
Date:May 26, 2003
Words:964
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