Premium Bonds swap guaranteed interest for the chance to win tax-free prizes. Whether that suits you depends on how you weigh certainty against chance.
Summary
- Premium Bonds are issued by NS&I and backed by HM Treasury.
- You can hold from £25 up to £50,000, and each bond is entered into a monthly prize draw.
- Prizes are tax-free, but there’s no guaranteed return; you could win nothing.
- The prize fund rate is variable and is an average, not what each holder receives.
Premium Bonds are a savings product from National Savings and Investments, known as NS&I. Instead of earning interest, your bonds are entered into a monthly prize draw. The money you put in is secure; what you get back on top depends on luck.
How they work
- You can hold from £25 up to £50,000 in Premium Bonds.
- Each £1 bond has its own number and is entered into a monthly prize draw.
- Prizes are tax-free, from small amounts up to a top prize each month.
- NS&I is backed by HM Treasury, so your capital is secure.
The prize fund rate
NS&I publishes a prize fund rate, which is the average return paid out in prizes across all bonds. It’s variable and can change.
Bear in mind
The prize fund rate is an average. Many holders, especially those with smaller amounts, may win less than this, or nothing at all, in a given year.
Premium Bonds vs savings accounts
| Factor | Premium Bonds | Savings account |
|---|---|---|
| Return | Prizes, not guaranteed | Interest, usually predictable |
| Tax | Prizes are tax-free | Interest can be taxable above allowances |
| Security | Backed by HM Treasury | FSCS protection up to the limit per firm |
| Access | Cash in at any time | Depends on the account |
| Inflation | Real value can fall if you win little | Interest may or may not keep up |
Our guide to FSCS protection explains how bank savings are protected, and our comparison of easy-access and fixed-rate savings covers interest-paying options.
Who they can suit
- Savers who have used up tax-free allowances on interest and want tax-free returns.
- People who value Treasury-backed security for larger balances.
- Those who enjoy the chance of a prize and accept that returns aren’t guaranteed.
Take care
Premium Bonds aren’t a good fit for money you need to grow reliably, such as savings for a fixed goal. Without guaranteed interest, inflation can reduce the real value of your money.
Buying for children
Parents and legal guardians can buy Premium Bonds for children under 16. Other people, such as grandparents, can buy bonds for a child as a gift, but a nominated parent or guardian manages them, whoever bought them. When the child turns 16, they manage their own bonds.
Practical tips
- Buy and manage bonds through NS&I directly.
- Keep your contact and bank details up to date so prizes reach you.
- Check the NS&I prize checker regularly for unclaimed prizes.
The bottom line
Premium Bonds offer security and the chance of tax-free prizes, in exchange for no guaranteed return. They can work alongside interest-paying savings and ISAs, rather than replacing them.
Questions readers ask
Are Premium Bonds safe?
Money in Premium Bonds is backed by HM Treasury, so your capital is secure. The return depends on prizes, which aren’t guaranteed.
How soon can new bonds win a prize?
New bonds need to be held for a full calendar month before they enter the draw. NS&I explains the exact timing.
Are Premium Bonds better than a savings account?
It depends. A savings account pays predictable interest, while Premium Bonds offer tax-free prizes with no guarantee. Some people hold both.
Can I cash in Premium Bonds?
Yes. You can cash in some or all of your bonds without a penalty, though it can take a few working days.
This guide is general information, not financial advice. Rules, rates and allowances can change, so check the latest details with the provider, GOV.UK or the Financial Conduct Authority before making decisions. For advice on your own circumstances, speak to an FCA-authorised financial adviser.