You don't say how much you earn, but if your overall income each year is in danger of tipping you into a higher tax bracket, putting your money into premium bonds can be a useful avoidance tactic. If you put £5,000 into premium bonds for 10 years without winning a single prize, and inflation ran at 2.5 per cent, your cash would be worth £3,880 in real terms when you took it back.Before too bleak a picture is painted, many IFAs says the bonds are a good alternative to leaving your cash in a deposit account. But even then, they should play only a small part in financial planning, and the objective will simply be to have a chance of a big win.The bonds can also help with tax planning. But, of course, if you're unlucky, you walk away with no gain.Worse, you'll probably have suffered an erosion in the value of your cash because, invested in premium bonds, it's at the mercy of inflation.Recent figures from IFA Bestinvest highlighted the dangers. First, they don't earn any interest at all: your friends have misinterpreted the "more than 3 per cent". This percentage - now 3.2 but rising to 3.25 per cent in August - is not a rate of interest, but instead reflects the likely return over the life of a bond if you enjoy "average luck".This average rate of return is set by NS&I, linked to the Bank of England base rate, and determines how much cash is given away in each month's prize draw.Here's how it works: the pot of winnings is the equivalent of one month's share of an annual 3.2 per cent "interest rate" payment on the full £26bn held in the bonds. Of these, in December 2004 for example, there were more than 850,000 handed out.Clearly, premium bonds are all about luck and are regularly treated as little more than a flutter by independent financial advisers (IFAs).Note that the chance of winning any monthly prize, of any size, is currently 1 in 24,000 (compared with 1 in 54 in the Lotto draw on Saturday nights).They may have a reputation as a safe investment but there are big downsides to the bonds.

The next biggest one is for £100,000 - there are five of these awarded each month - followed by eight of £50,000, 18 of £25,000 and so on, right down to the £50 prizes. This means the odds of a single premium bond being plucked to win the big jackpot - 1 in 26 billion today - will halve to 1 in 13 billion.There are, of course, plenty of smaller prizes to keep you interested. Today, some 23 million people own premium bonds worth a staggering £26bn in total - all with their eyes on the monthly £1m tax-free jackpot.Since 1999 they have soared in popularity, with savers depositing more cash than in the previous 42 years since the bonds were introduced.A number of factors lie behind this: a series of successful ad campaigns; the falling stock markets between 2000 and 2003; the allure of tax-free returns; and a loss of trust in other parts of the UK financial services industry after various mis-selling scandals.The flood of money pouring into the funds, run by National Savings & Investments, has swelled NS&I's reserves to the point that, from 1 August, there will be two £1m prizes each month. Since February, my brother and a couple of friends have each won at least £100 - in one case, it was £500 - on the premium bonds Q. Some sites let you burn a track on to a CD as many as five times; others will allow this just once.And check, too, that you are allowed thousands of downloads; some broadband subscription deals impose limits, above which you will be charged extra..

But since tracks are quite cheap to download at 99p each, you will often end up with credits left over.Always check each website's restrictions on how you can use tracks, known as digital rights management. Judged on value for money, ease of use, sound quality and range of music, iTunes came out top, although it was criticised for charging customers in Britain 20 per cent more than in the rest of Europe.On Mycokemusic, which was launched last year by the Coca-Cola Company, you buy credits and get more of these for your money if you buy in bulk For example, £40 will get you £50 worth of credits. They cannot be transferred to any other MP3 player.Researchers at Which?, the consumer watchdog, assessed 10 download sites, including Napster, Wippit, Streetsonline and Mycokemusic. (These charges are virtually the same as on a third Napster service, the pay-as-you-go Napster Light.) But watch out - tunes downloaded from iTunes will play only on Apple software on your machine or on an Apple iPod.