High-yield savings vs Premium Bonds: which wins for your tax band?

By "high-yield savings" we mean the best-paying easy access, notice, fixed-rate and regular saver accounts from banks and building societies, rather than a high street default account.

The Premium Bonds figures are from NS&I at the time of writing (October 2026): a prize fund rate of 4.35% and odds of 21,000 to 1 for each £1 bond in each monthly draw. Both are variable and can change at any time.

The 4.35% prize fund rate is the size of the prize pot as a share of all bonds. It is an average across millions of holders, and the prize structure is weighted towards a large number of £25 prizes plus a few very large ones that pull the average up. Most holders, especially with smaller amounts, earn less than the headline rate.

The odds show how lumpy it is. At 21,000 to 1 per £1 bond per month:

• £1,000 in bonds gives an average of about 0.6 prizes a year, so a year with no win is quite likely.
• £10,000 averages about 5.7 prizes a year.
• The maximum £50,000 averages about 29 prizes a year, so results get closer to the average, though usually still a little below it.

A savings account pays the advertised rate every time. If you need to know what your money will earn, that certainty is worth something.

Savings interest is tax-free up to your Personal Savings Allowance: £1,000 a year for basic rate taxpayers, £500 for higher rate and nothing for additional rate. Some people on low earnings can also use the starting rate for savings of up to £5,000. Above those limits, interest is taxed at your income tax rate, and savings tax rates rise by 2 percentage points from 6 April 2027 (to 22%, 42% and 47%).

Once your allowance is used up, this is the gross rate a taxable account would need to pay to match the 4.35% Premium Bonds average:

With Bank Rate at 3.75%, ordinary savings accounts are not paying anywhere near the higher and additional rate figures. That is why Premium Bonds are popular with people who pay 40% or 45% tax and have already filled their ISA. Just remember that the comparison is with the average prize rate, which most holders do not quite achieve.

If your interest stays within your allowance, the tax advantage of Premium Bonds disappears and the guaranteed account usually wins. As a rough guide, at a 4% interest rate:

• A basic rate taxpayer can hold about £25,000 before interest exceeds the £1,000 allowance.
• A higher rate taxpayer can hold about £12,500 before exceeding £500.
• An additional rate taxpayer pays tax on all interest outside ISAs.

Remember to count interest from all your accounts, including fixed-rate bonds that pay out at maturity. Our savings rates comparison tool and compound interest calculator help you work out what you will actually earn.

A Cash ISA pays guaranteed, tax-free interest, so it competes directly with Premium Bonds for anyone worried about tax. You can put up to £20,000 a year into ISAs in 2026/27. From 6 April 2027, under-65s will be limited to £12,000 a year in Cash ISAs within that £20,000, which may push some higher rate savers towards Premium Bonds for extra tax-free cash.

A sensible order for many people is: use your Personal Savings Allowance with the best taxable account, then a Cash ISA, then Premium Bonds for money you want tax-free and fully government-backed. Our guide to high interest savings accounts and Cash ISAs explains how to compare them, and ISA vs Premium Bonds goes deeper on that choice.

A high-yield savings account is usually better if you are a basic rate taxpayer within your allowance, you hold a smaller amount, you need a predictable return (for an emergency fund or a goal with a date), or a fixed-rate account is paying clearly more than 4.35%.

Premium Bonds can make more sense if you pay higher or additional rate tax and have used your allowance and ISA, you have more than £120,000 with one banking group and want full government backing, or you simply enjoy the draw and accept the return may be lower.

Many people split the difference: an easy access account for the emergency fund and Premium Bonds for longer-term cash. Whatever you choose, keep adding to it regularly. SYM can prompt you to put a little aside each day, wherever you keep the money.