Are Premium Bonds worth it?
Premium Bonds are a place to keep cash, not a way to build wealth, and most savers will earn more in a good savings account. But the prizes are tax-free, and a coming rise in tax on savings interest makes them hard to beat for anyone who has filled their ISA and already pays tax on their interest.
About 20 years ago, I held Premium Bonds. Then I did the sums and worked out that I'd have been better off keeping the money in a high-interest savings account. So I sold them, and I haven't held any since. I still think that was the right call for me at the time. I'm less sure it's the right call for everyone now. The reason is tax.
Plenty of people have reached a different conclusion. More than 22 million people hold Premium Bonds, according to NS&I, the government-backed savings bank that runs them. Many of them ask whether they'd be better off investing instead.
'Premium Bonds or invest?' is really two questions, because money does two different jobs. Some of it needs to be there next month or next year. Some of it won't be touched for decades. Whether Premium Bonds are worth it depends on which job you're asking them to do.
Winning a million isn't the same as building one
A recent analysis, widely reported in the national press, found that people with a stocks and shares ISA were 32 times more likely to be millionaires than Premium Bond holders. It set one in 1,565 stocks and shares ISA holders with £1 million or more against one in 49,887 Premium Bond holders who have won the £1 million jackpot. The figures show what long-term investing can do, but it compares two different things. A Premium Bonds millionaire won £1 million in a draw. An ISA millionaire built it, much of it from their own contributions. With holdings capped at £50,000, Premium Bonds were never a way to build a fortune.
Over the long run, shares have beaten cash by a wide margin. From 1900 to 2024, world equities returned 5.2 per cent a year after inflation, against 0.5 per cent for bills, according to the UBS Global Investment Returns Yearbook. But shares can also fall hard and stay down for years. So money you need soon belongs in cash, and money you won't need for a decade or more belongs invested, in a diversified portfolio. The real question about Premium Bonds is how they compare with other places to keep cash.
What Premium Bonds really pay
Premium Bonds pay no interest. Instead, NS&I sets a prize fund rate, which decides how much goes into the monthly prize pot. Since the September 2026 draw that rate has been 4.35 per cent, up from 3.8 per cent. The odds of each £1 bond winning in a given month are 21,000 to 1, and you can hold up to £50,000. New bonds must be held for a full calendar month before they enter the draw, and cashing in isn't instant, so they're a little slower to work with than an easy-access account.
The catch is that 4.35 per cent is an average across all holders, pulled up by a handful of very large prizes. Most people win less. MoneySavingExpert estimates that someone with typical luck and a full £50,000 holding wins £1,900 a year, or 3.8 per cent. Smaller holdings fare worse: with £1,000 and typical luck, you win nothing in a year. Some holders will beat the typical figure, and a few will beat it by a lot, but nobody knows in advance which group they'll be in.
So for anyone who pays no tax on their interest, the comparison that matters is 3.8 per cent with typical luck against an account that pays a known rate. In early November 2026, the best easy-access cash ISA paid 4.87 per cent, including a bonus for the first 12 months, according to MoneySavingExpert. Easy-access rates can change, but they don't depend on a draw.
That's the comparison I made 20 years ago. For savers who pay no tax on their interest, it still comes out the same way.
Are Premium Bonds worth it if you pay tax on your savings?
Premium Bonds have one advantage no taxed savings account can match: the prizes are tax-free.
Anyone with unused ISA allowance should look at a cash ISA first. It's tax-free too, and it pays a known rate. Outside an ISA, the Personal Savings Allowance lets you earn some interest tax-free: £1,000 a year for basic-rate taxpayers, £500 for higher-rate taxpayers and nothing for additional-rate taxpayers. If your interest sits within that allowance, the tax advantage of Premium Bonds is worth nothing.
The case for Premium Bonds starts once your ISA is full and your interest runs past the allowance. A taxed account then has to pay a good deal more than Premium Bonds to leave you with the same return.
Budget 2026 raises that hurdle. From 6 April 2027, tax on savings income rises to 24 per cent for basic-rate taxpayers, 44 per cent for higher-rate and 49 per cent for additional-rate, up from 20, 40 and 45 per cent. The Personal Savings Allowance doesn't change. Nor does the £20,000 cash ISA limit, because the planned cut to £12,000 has been dropped.
The rate a taxed savings account must pay to match Premium Bonds from 6 April 2027
Tax band | At the prize rate (%) | At typical luck (%) |
Basic rate | 5.72 | 5.00 |
Higher rate | 7.77 | 6.79 |
Additional rate | 8.53 | 7.45 |
Source: TEBI calculation from NS&I prize fund rate (4.35%, as at 01/11/2026),
MoneySavingExpert's typical-luck return of 3.8% on £50,000, and savings tax rates from Budget 2026. Applies only to interest above your Personal Savings Allowance. Assumes today's prize rate and prize structure stay the same, so these are illustrations, not forecasts.
In early November 2026, the best taxable easy-access account for larger sums paid 4.57 per cent, according to MoneySavingExpert. For basic-rate taxpayers already paying tax on their interest, that makes it close, with Premium Bonds narrowly ahead at typical luck. For higher and additional-rate taxpayers, it isn't close at all. Smaller holdings do a little worse:
MoneySavingExpert's typical-luck figure on £10,000 is 3.5 per cent, which a higher-rate taxpayer would still need a taxed account paying 6.25 per cent to match.
All of this depends on NS&I, which sets the prize rate and changes it often. This year it cut the rate to 3.3 per cent in April, then raised it to 3.8 per cent in July and 4.35 per cent in September. A future cut would lower every figure in the table.
Not every saver in these groups will want Premium Bonds, either. A saver who dislikes uncertain returns may reasonably prefer a fixed-rate account, even after tax. But for anyone with a full ISA who already pays tax on their interest, and especially for higher earners, the sums now point the other way.
A place to keep money, not to make it
Premium Bonds are safe and tax-free, but they can't reliably build wealth. Money you won't need for many years belongs invested, though how much of your portfolio to hold in shares depends on your circumstances.
My own cash now sits entirely in an ISA and a fixed-term savings bond.
The right question isn't whether Premium Bonds beat investing. They don't, and they were never meant to. It's whether they beat the other places you could keep your cash. For some savers, they now do.
If this has you thinking about moving long-term money out of cash, the TEBI YouTube channel has a playlist of short videos to help you take the first steps: Where do I start investing?
Resources
Dimson, E., Marsh, P., & Staunton, M. (2025). UBS Global Investment Returns Yearbook 2025. UBS.
HM Treasury. (2026). Budget 2026: Overview of tax legislation and rates. HM Treasury.
MoneySavingExpert. (2026). Premium Bonds [Guide]. MoneySavingExpert.
NS&I. (2026, August 18). Boost for Premium Bonds, including around 308,000 extra tax-free prizes – plus improved interest rates for four other NS&I savings products [Press release]. NS&I.
Deciding what each pound is for
Working out which money is for spending soon and which is for decades is the starting point of How to Fund the Life You Want by TEBI editor Robin Powell and Jonathan Hollow. The second edition, published by Bloomsbury, brings together pensions, tax and investing for UK readers who want a plan rather than a product. Buy it on Amazon.
For TEBI's latest articles on saving and investing, plus curated reading with Robin's commentary, sign up to the TEBI Digest.
