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A staggering £136 billion is currently invested in NS&I Premium Bonds by more than 24m people, equivalent to a third of the UK population, but are they really the best home for your money?
Nearly £6 billion was paid into Premium Bonds in 2025 alone. It’s not hard to see their appeal, as they offer bondholders the chance to scoop one of two £1m jackpots every month, along with numerous other tax-free prizes.
However, the prize fund rate has reduced four times over the past year and will reduce again in April 2026, from 3.60% to 3.30%.
Here, we explain how Premium Bonds work, what your chances of winning a prize are, and how they stack up against savings accounts.
Contents
- How savings accounts compare
- How do Premium Bonds work?
- How do you buy Premium Bonds?
- Do I have to pay tax on any winnings?
- How will I be told about any Premium Bond prizes I win?
- What are the chances of winning a prize?
- What if I think I might have an unclaimed Premium Bond prize?
- Which is better – savings accounts or Premium Bonds?
How savings accounts compare
Currently, savings rates are relatively high, so for someone with ‘average’ luck, Premium Bonds offer lower returns than most savings accounts.
The best easy access savings accounts currently offer rates higher than the Premium Bond prize rate. Remember, too, that the prize fund rate is by no means guaranteed and will depend on how lucky you are, so you may end up earning nowhere near this amount.
If you’re happy to tie your money up for at least a year, you may alternatively want to consider a fixed rate account. Some of the top rates currently available are shown below.
Top 5 Fixed Rate Accounts
Alternatively, if you’re worried about breaching your Personal Savings Allowance and want to keep your savings in a tax-efficient individual savings account (ISA).
Top 5 Easy Access ISAs
You can find out more about Cash ISAs in our guide Best cash ISA rates – which cash ISAs pay the most interest?
How do Premium Bonds work?
Premium Bonds are offered by NS&I which is backed by the government, meaning they are 100% secure. The minimum amount you can invest in Premium Bonds is £25 and the maximum is £50,000.
You won’t earn any interest on any money held in Premium Bonds but, as mentioned, your bonds will be entered into a prize draw each month where you could win one of two £1m prizes, or smaller cash prizes ranging in value from £25 up to £100,000.
You can buy Premium Bonds on behalf of children or grandchildren up to the age of 16 and you can cash in your bonds whenever you want.
How do you buy Premium Bonds?
You can buy Premium Bonds online at NS&I by debit card (you can’t pay for them using a credit card) here. Alternatively, you can buy them by post. If you apply by post, you must first download an application form from the website. There is also a telephone number for NS&I.com which is 08085 007 007.
Do I have to pay tax on any winnings?
Any winnings from Premium Bonds are completely tax-free.
However, most people who put money into a savings account don’t usually pay tax on the interest they earn unless they have a very high balance or are a higher or additional rate taxpayer. That’s because the Personal Savings Allowance currently enables you to earn up to £1,000 in interest a year from your savings without having to pay tax on it. If you’re a higher rate taxpayer, the Personal Savings Allowance falls to £500 and additional rate taxpayers paying the top rate of income tax don’t get a Personal Savings Allowance. You can learn more in our guide What is the Personal Savings Allowance?
By way of example, a basic-rate taxpayer with savings in an account paying 4% would only go over the annual £1,000 Personal Savings Allowance limit if they had more than £25,000 in savings. Higher rate taxpayers would need to have more than £12,500 earning 4% interest to reach their £500 Personal Savings Allowance.
You can also consider keeping your cash savings in a cash individual savings account (ISA) where you don’t have to pay any tax on the interest you receive. Find out more about cash ISAs in our article How cash ISAs work and you can see which cash ISAs currently pay the highest rates in our guide Best cash ISA rates – which cash ISAs pay the most interest?
How will I be told about any Premium Bond prizes I win?
If you’re lucky enough to be a £1m Premium Bond jackpot winner, usually you’ll be visited in person by a representative of NS&I called ‘Agent Million’.
If you win a smaller prize, you’ll either be notified by text, email or post. A spokesman for NS&I said: “Customers who have chosen to have prizes paid to their bank account, or have their prizes reinvested, will be informed whether they have won by email or text message and can check the online prize checker at nsandi.com or the NS&I prize checker app to see the value of their prize.”
You can choose to have your prizes paid directly to your bank account (or NS&I Direct Saver account) or reinvested into more Bonds, or you can have them paid by cheque.
You can let NS&I know your preference for receiving prizes by logging into your account at nsandi.com and amending ‘Your prize options’ under the ‘Your profile’ section. NS&I says it will never call customers and ask for their bank details. Alternatively, you can call NS&I on 08085 007 007 and let them know how you’d like to receive any prizes.
What are the chances of winning a prize?
The odds of each £1 Premium Bond winning a prize in each monthly draw are 22,000 to one, but will lengthen to 23,000 to one from April. When the prize fund rate falls to 3.30%.
This means that if you held every single Premium Bond there is, your winnings would in theory, work out at 3.30% of the amount you invested. However, some people won’t win anything at all and others will win more than this, so this figure shouldn’t be relied on as a guide to the actual returns you’ll end up with – you might get a lot less, or nothing at all.
Bear in mind that if you aren’t lucky enough to win prizes regularly, inflation will reduce the purchasing power of your money over time.
What if I think I might have an unclaimed Premium Bond prize?
There are currently around 2.7m Premium Bond prizes worth more than £115m lying unclaimed. Prizes often aren’t collected because people have moved home and forgotten to notify NS&I of their contact details.
You can find out if you’ve won a prize using NS&I.com’s Prize Checker tool. This enables you to check whether you’ve won in the latest draw, in the last six months, or if you have any unclaimed prizes in any draw.
Which is better - savings accounts or Premium Bonds?
That entirely depends on how lucky you are! Whereas with a savings account you’ll definitely receive the advertised rate of interest, if you have Premium Bonds, there’s no guarantee you’ll win anything at all.
If you are considering putting money into Premium Bonds, you’ll need to consider the fact that in the average month, the average bond will win nothing, so your money will be losing its purchasing power once inflation is factored in.
However, although easy access savings rates are currently competitive, many people may be happy to accept the risk that they might not win anything and prefer to put their money into Premium Bonds, especially as their initial investment is protected, and they can cash in their bonds at any time.
Mark Hicks, Director of Active Savings at Hargreaves Lansdown said: “Premium Bonds hold a special place in people’s hearts with the opportunity to win up to £1m tax free acting as a great incentive to pile your money in. However, the odds of winning anything just got even longer, from 22,000 to one to 23,000 to one, with the prize rate also being slashed to 3.30% – it serves as a timely reminder as to whether you can get more for your money elsewhere.
“The fact that Premium Bonds are 100% backed by Treasury will still mean they remain popular, though it is fair to say that the Financial Service Compensation Scheme (FSCS) increased its protections to cover up to £120,000 per person per bank, building society and credit union from 30 November 2025 so many people will already be well covered.
“However, the lure of a big tax-free cash prize will still prove powerful for many, so Premium Bonds will continue to play a role in some people’s financial lives – it’s just important to regularly assess what else is out there and whether you can get more for your savings elsewhere.”
It’s down to you to decide whether you want to put your money into Premium Bonds or whether you’d prefer guaranteed returns from your savings. Remember that you don’t have to pick one or the other; you might, for example, choose to put a bit into both so that you have a chance of winning a prize, but you’ll still be earning interest on some of your savings.
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