Are Premium Bonds worth it?
17 August 2026
Over 24 million customers save with NS&I, the home of Premium Bonds. But are they actually worth it? This guide covers how they work, the real pros and cons, how they compare to ISAs and savings accounts, your statistical chances of winning, and who they suit, and who they don’t.
About This Guide
Written by the team at That’s Family Finance.
The Basics
What are Premium Bonds?
Premium Bonds are a savings product offered by NS&I (National Savings & Investments), backed by HM Treasury. Instead of earning interest, your money is entered into a monthly prize draw.
- Each £1 saved = one Bond number= one entry into the monthly draw
- Prizes range from £25 to £1,000,000: two jackpots every month
- Your original capital is 100% secure: you can never lose what you put in
- All prizes are completely tax-free, regardless of your tax band
- The current prize fund rate is published monthly by NS&I
Important: The prize fund rate is not a guaranteed return. It’s the statistical average across all bondholders. Your actual return could be higher, lower, or zero.
How It Works
How do Premium Bonds work?
1
Buy bonds: Minimum £25, maximum £50,000, online, via app, or by post.
2
Get your bond numbers: Each £1 = one unique number entered into ERNIE each month.
3
ERNIE draws winners: Completely random, no skill, no pattern, no advantage.
4
Prizes paid: Direct to your bank account, or reinvested as new bonds.
5
Withdraw anytime: No penalties, no lock-in, funds typically arrive within a few working days.
Pros & Cons
Premium Bonds pros and cons
Advantages
- 100% capital security: backed by HM Treasury
- Tax-free prizes: no income tax, no CGT
- Flexible access: withdraw within a few working days
- No lock-in: no fixed term, no exit penalties
- Chance of large prizes: two £1m jackpots monthly
- Beyond FSCS limits: full government guarantee, no £120,000 cap
- Simple to manage: online, app, or post
Disadvantages
- No guaranteed return: you could win nothing
- Luck-dependent: smaller holdings win less frequently
- Inflation risk: real value can erode if prizes lag inflation
- Opportunity cost: high-rate accounts may outperform
- Not a reliable income: prizes are irregular
- £50,000 cap: cannot hold more per person
Winning Odds
What are the chances of winning on Premium Bonds?
NS&I publishes the prize fund rate and odds monthly. Key points to understand:
- The odds per bond per draw are published on the NS&I website and change periodically
- Larger holdings: improve your statistical frequency of wins, but every bond has the same individual odds
- The jackpot odds are extremely low regardless of holding size
- Over a full year, a holder near the £50,000 maximum is statistically likely to win something but this is not guaranteed
- A holder with £1,000 in bonds may go many months without a win
Always check: The current prize fund rate and odds on the official NS&I website: they change regularly and this article may not reflect the latest figures.
Comparisons
Premium Bonds vs savings accounts and ISAs
ℹ Reminder: Factual comparisons only, not recommendations. Your personal circumstances determine what is appropriate for you.
Premium Bonds vs. Cash ISA
| Factor | Premium Bonds | Cash ISA |
|---|---|---|
| Return | Prize-based (variable) | Fixed or variable interest |
| Tax treatment | Prizes tax-free | Interest tax-free |
| Capital security | 100% HM Treasury | Up to £120,000 (FSCS) |
| Annual limit | £50,000 total | £20,000 per tax year (2026-27) (2026-27) (2026-27) (2026-27) |
| Guaranteed return | No | Yes (fixed rate ISAs) |
Saving for your children? Read our Junior ISA guide (2026).
Premium Bonds vs. Stocks & Shares ISA
| Factor | Premium Bonds | Stocks & Shares ISA |
|---|---|---|
| Risk to capital | None | Yes, value can fall |
| Potential return | Prize fund rate equivalent | Historically higher long-term |
| Time horizon | Any | Typically 5+ years |
| Volatility | None | Can be significant |
| Tax treatment | Tax-free prizes | Tax-free growth & income |
Premium Bonds vs. Easy Access Savings
| Factor | Premium Bonds | Easy Access Savings |
|---|---|---|
| Return | Variable (prize-based) | Variable interest rate |
| Guaranteed return | No | Yes |
| Capital security | HM Treasury | FSCS up to £120,000 |
| Access speed | A few working days | Often same day |
| Tax on returns | None | Subject to PSA |
Premium Bonds vs. Fixed-Rate Savings Bonds
| Factor | Premium Bonds | Fixed-Rate Savings Bonds |
|---|---|---|
| Return | Variable | Guaranteed fixed rate |
| Access | Flexible | Locked in for term |
| Best for | Flexibility + prize chance | Certainty of return |
Suitability
Who are Premium Bonds good for?
May be worth considering if you…
- Already use your full ISA allowance(£20,000/year) and want a tax-efficient home for additional savings
- Are a higher or additional rate taxpayer who has used their Personal Savings Allowance
- Want 100% capital security with government backing beyond FSCS limits
- Have a larger holding(closer to £50,000), statistically, more bonds = more consistent wins
- Don’t need a guaranteed monthly income from savings
- Are comfortable with variable, luck-based returns
- Want flexible access: without lock-in periods
May be less appropriate if you…
- Need a guaranteed, predictable return(e.g., relying on savings income)
- Hold a small amount(e.g., under £1,000), statistically, wins are infrequent
- Are in a low tax band and would benefit more from straightforward interest
- Are saving for a specific goal with a deadline and need certainty
- Want money to grow in real terms: above inflation consistently
- Are looking for long-term wealth building: other vehicles may be more appropriate
Thinking about protecting your family too? Premium Bonds are great for savings, but they don’t protect your family if the worst happens. Read our guide to Mortgage Protection Insurance.
Tax
Are Premium Bonds tax free?
- All prizes are completely tax-free: they do not count as income
- Prizes do not: use up your Personal Savings Allowance (PSA)
- Prizes do not: need to be declared on a Self Assessment return, see HMRC guidance on the PSA
- There is no Capital Gains Tax on Premium Bond prizes
- Particularly attractive to higher and additional rate taxpayers who have exhausted their PSA
Getting Started
How to buy Premium Bonds
1
Visit nsandi.com: Always use the official NS&I website: never third-party sites.
2
Create or log in: Online, via the NS&I app, or by post.
3
Choose your amount: Minimum £25, maximum £50,000 per person.
4
Bonds enter the draw: You need to hold them for a whole month first: Bonds bought in November enter the January draw.
5
Check your prizes: Via the NS&I Prize Checker or app.
You can also buy for a child under 16. See our Junior ISA guide for other ways to save for children.
How to cash in Premium Bonds
- Log in to your NS&I account online or via the app
- Select the amount you wish to withdraw
- Funds typically arrive within a few working days
- No penalties for withdrawing at any time
- Withdrawn bonds are removed from future draws immediately
Premium Bonds jargon explained
Bond Number
Each £1 invested is assigned a unique bond number, your entry into the monthly prize draw.
ERNIE
Electronic Random Number Indicator Equipment. Randomly selects winning bond numbers each month. No pattern or skill involved.
Prize Fund Rate
The equivalent interest rate used to fund the prize pool. Published monthly by NS&I. Not a guaranteed return.
NS&I
National Savings & Investments. The UK government-backed savings bank that operates Premium Bonds. Backed by HM Treasury.
FSCS
Financial Services Compensation Scheme. Protects deposits up to £120,000 per eligible person (as at October 2026). Premium Bonds are not covered by FSCS. They are directly backed by HM Treasury.
Personal Savings Allowance (PSA)
Tax-free interest allowance: £1,000 (basic rate), £500 (higher rate), £0 (additional rate), 2026-27. Premium Bond prizes do not count against your PSA.
Capital Security
The guarantee your original investment will not fall in value. Premium Bonds offer 100% capital security.
Opportunity Cost
The return you forgo by choosing one option over another. If a savings account pays more than Premium Bonds return, the difference is your opportunity cost.
Inflation Risk
The risk that rising prices erode the real value of your money over time, even in a safe savings product.
Liquidity
How quickly you can access your money. Premium Bonds are highly liquid, withdraw within a few working days with no penalties.
FAQs
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Frequently asked questions
Are Premium Bonds safe?
Yes. Backed by HM Treasury, 100% secure. Not covered by the FSCS £120,000 limit; the full amount is government-guaranteed.
Can you lose money on Premium Bonds?
No. Your capital is fully protected. However if you win no prizes, inflation may erode its real-world value over time.
Are Premium Bond prizes taxable?
No. All prizes are completely tax-free and do not count against your Personal Savings Allowance.
What is the maximum holding?
£50,000 per person. Children can hold up to this limit, managed by a parent or guardian until age 16.
How often are prizes drawn?
Monthly, by ERNIE.
What is the minimum investment?
£25.
How long does withdrawal take?
A few working days. No penalties.
Are Premium Bonds better than a Cash ISA?
Depends entirely on your personal circumstances, tax position, and goals.
Can I buy Premium Bonds for my child?
Yes. A parent, guardian, or grandparent can purchase for a child under 16. See also our Junior ISA guide.
Do Premium Bonds count as savings or investments?
NS&I classifies them as savings. No stocks, shares, or funds involved. Capital is not at risk.