Premium Bonds prize rate to rise to 4.35% – how do they compare?

It’s the second Premium Bond prize-fund rate increase this year and it will take the rate to its highest level since December 2024. NS&I said the increased rate is to ensure it reflects “current market conditions” and to help meet its net financing target (the amount the Government wants NS&I to bring in from savers).

In July, the prize-fund rate increased from 3.3% to 3.8%, which was the first rise in almost three years, following a series of consecutive cuts by NS&I.

The odds of a single £1 bond winning will also improve, going from one in 22,000 in the July draw to one in 21,000 for the September draw.

But it’s important to note that most people with typical luck won’t get a return of 3.8% (or 4.35%), even with the maximum £50,000 invested. The reason behind this is quite complex – see below for our brief breakdown, or check out our Premium Bonds guide for a full explanation.

Despite the rate rise, Premium Bonds can still be beaten elsewhere

While the improved rate makes Premium Bonds more attractive, most savers with average luck are still likely to do better with standard savings accounts – though the gap is narrowing. That’s because savings interest is a guaranteed return.

Currently, you can earn up to 5% on amounts of up to £5,000 with the top easy-access savings rates, while the minimum rate you should be getting is around 4.5%. If you get 4.5%, you’d earn £45 in interest a year for every £1,000 saved.

Though this interest rate is variable, meaning it can go up and down over time, you know exactly what you’ll earn at any given point – so it still provides more certainty than Premium Bonds, where many saving the same £1,000 would win nothing.

Many people often think: “I’m likely to get the prize rate (or thereabouts) – and there’s a small chance of winning a million”, but this isn’t correct. You’re actually likely to get quite a lot less than the headline prize rate (3.8% or 4.35%), and there’s a negligible chance of winning a million.

If you know and accept this, then investing in Premium Bonds isn’t a bad plan. Otherwise, see our regularly updated Top savings guide for the latest deals.

Premium Bond prizes are tax-free – though cash ISAs will likely win for most

With normal savings, while interest is paid tax-free, it is taxable as income. However, each tax year you get a personal savings allowance (PSA) that means:

• Basic 20% rate taxpayers don’t pay tax on the first £1,000 a year of interest.

• Higher 40% rate taxpayers don’t pay tax on the first £500 a year of interest.

• Top 45% rate taxpayers pay tax on all interest.

With the current top standard (non-ISA) easy-access rate a minimum of 4.5%, it takes just over £22,222 in savings for basic-rate taxpayers to exceed the allowance and start paying tax on the interest (and just over £11,111 for higher-rate taxpayers).

Premium Bond prizes aren’t taxed, which means that if you’ve larger savings in cash, have maxed out your £20,000 a year ISA allowance, and earn enough interest to exceed your PSA, Premium Bonds are probably a decent choice… if you can accept the random nature of the ‘interest’.

For everyone else, cash ISAs – savings accounts you never pay tax on – are probably the better choice. The top easy-access cash ISA rate is currently 4.56% – this is tax-free and offers a guaranteed return that’s still slightly higher than the new Premium Bond prize rate of 4.35% (which you need to be lucky to actually get).

A brief breakdown of the complex maths behind Premium Bonds

Premium Bonds are essentially a savings account you can put money into, where instead of being paid interest, tax-free prizes are awarded in a monthly draw. Prizes range from £25 to £1 million.

The nearest thing Premium Bonds have to an interest rate is their annual prize-fund rate – this is what’s increasing from 3.8% to 4.35% in September. It’s a benchmark of the “average” return you’ll get for your money – though in reality, there’s no guarantee you’ll win anything at all.

What it really means is that for every £100 invested in Premium Bonds, £3.80 (soon to be £4.35 from September) is paid out every year in prizes. But although the prizes include two £1 million payouts and other big prizes, many win far less.

Below is a breakdown of how the number of prizes awarded is estimated to change from September 2026: