Over 22 million people hold Premium Bonds. But with the prize fund rate at 4% and savings accounts offering similar guaranteed rates, are they still worth it?
How Premium Bonds Work
Issued by NS&I, backed by HM Treasury. Instead of interest, your money enters a monthly prize draw. Prizes range from £25 to £1 million. The 4% prize fund rate is the average across ALL bondholders, not individual expectation. Hold between £25 and £50,000.
Returns vs Savings Accounts
With £50,000 in bonds, expect ~£2,000/year in prizes statistically. A 4.5% Cash ISA guarantees £2,250. Key difference: Premium Bond winnings are completely tax-free with no limit. For higher-rate taxpayers with large savings, they can actually beat taxed accounts.
Who They're Best For
Premium Bonds make sense in specific situations.
- Higher-rate taxpayers who've maxed their PSA and ISA
- People who enjoy lottery-style excitement
- Savers wanting guaranteed government-backed security
- Those who'd spend interest but leave 'winnings' to accumulate
Premium Bonds vs Other NS&I Products
NS&I also offers Income Bonds, Green Savings Bonds, and Direct Saver. The choice is guaranteed returns vs excitement of potential big wins.
Frequently Asked Questions
Can I lose money with Premium Bonds?
You can't lose capital — bonds are always worth face value, backed by the UK government. The risk is earning less than inflation.
How likely am I to win £1 million?
With £50,000, about 1 in 54 billion per draw. Extremely unlikely, but someone wins every month.
Premium Bonds or Cash ISA?
Basic-rate taxpayers should usually prefer a Cash ISA at 4.5%+. If you've maxed your ISA and PSA, Premium Bonds offer completely tax-free returns.
- premium bonds
- NS&I
- tax-free savings
- UK savings
- prize draw