A government savings product where instead of interest, you're entered into a monthly prize draw. Tax-free, 100% safe, but no guaranteed return.
Premium Bonds
A government savings product where instead of interest, you're entered into a monthly prize draw. Tax-free, 100% safe, but no guaranteed return.
By Scrimpr
Updated 18 Jan 2026 What are Premium Bonds?
Premium Bonds are a savings product from NS&I (National Savings and Investments), backed by the UK government. Instead of paying interest (money a bank pays you for keeping savings with them), your money is entered into a monthly prize draw. Each £1 you hold is one entry.
What can you win?
Prizes range from £25 to £1 million. Two £1 million prizes are drawn every month, plus millions of smaller prizes. The odds of each £1 bond winning any prize are currently about 1 in 21,000.
What’s the “prize fund rate”?
NS&I quotes a prize fund rate. Currently around 4%. But this isn’t a guaranteed return. It’s the total prize money divided by all bonds. Some people win big, most win less than 4%, many win nothing.
With typical luck and a smaller holding, you’ll probably earn less than a regular savings account. With bad luck, you could go years without a single prize.
When do Premium Bonds make sense?
For most people, a high-interest savings account pays more reliably. But Premium Bonds can be useful in specific situations:
- You’ve exceeded your Personal Savings Allowance. Basic rate taxpayers can earn £1,000 in savings interest tax-free, higher rate taxpayers £500. Beyond that, you pay tax. Premium Bond prizes are always tax-free.
- You’ve used your ISA allowance. If you’ve already put £20,000 into ISAs this tax year, Premium Bonds offer another tax-free option.
- You have a large sum and want total safety. The FSCS (Financial Services Compensation Scheme) only protects £85,000 per bank. Premium Bonds are 100% government-backed with no limit. Useful for holding a large lump sum while you decide what to do with it.
- You like the fun of it. Some people enjoy the monthly draw, even if expected returns are lower.
How much can you hold?
Minimum £25, maximum £50,000 per person. You can withdraw anytime without penalty.
Key points about Premium Bonds
- Prize draw instead of interest. Win between £25 and £1 million
- Tax-free winnings. Don’t count towards Personal Savings Allowance
- 100% government-backed. Safer than FSCS protection for large sums
- No guaranteed return. You might earn less than a savings account, or nothing
- Best for higher earners or large balances where the tax-free aspect matters
More information
Scrimpr links to official sources so you can verify what you’ve learned.
