The prize fund rate for Premium Bonds is currently 3.6 percent
You can win big prizes in the Premium Bonds monthly draw(Image: Getty)
Premium Bonds holders have been urged to check over their accounts head of a major change. Customers who haven’t won any prizes recently might be wondering whether it’s time to withdraw their investments.
The monthly prize draw offers substantial rewards, including £50,000, £100,000, or even the £1million jackpot. But your success relies entirely on chance and you could go months, years, or even decades without claiming anything. The scheme’s prize fund rate currently sits at 3.6 percent, following three cuts by provider NS&I during 2025. Each £1 Bond has slim odds of winning, at just 22,000 to one. Even winners typically receive prizes for small amounts such as £25 or £50. Such small returns may fall short of the interest returns or investment gains you could get through alternative options.
Financial specialists have weighed in on whether Premium Bonds continue to represent a worthwhile savings choice or if savers should relocate their funds elsewhere. Kate Steere, money expert at personal finance comparison platform Finder, said: “For most Brits, opting to put their cash savings into Premium Bonds would be a mistake. With interest rates on a downward trajectory and a drop in the cash ISA allowance looming, Premium Bonds are seen as the ‘safe’ option.
“But while they offer security and shelter from the taxman, you could end up earning absolutely nothing. With inflation holding firm, that simply means the value of your cash savings is being slowly eroded.”
Chancellor Rachel Reeves announced in the Autumn Budget 2025 that the current ISA allowance of £20,000 would be cut so savers can only put up to £12,000 of the allowance into cash ISAs, starting from April 2027. The remaining £8,000 must be allocated to stocks and shares accounts.
A better choice for savers
Ms Steere said that cash ISAs generally deliver better returns compared to Premium Bonds. She explained: “Cash ISAs remain the better choice for savers, particularly while the allowance stays at £20,000 for the next tax year.
“Savings apps like Moneybox and Plum, for example, are currently offering inflation-beating boosted rates for new customers – 4.39 percent and 4.36 percent respectively.” Will Stevens, partner at financial planning firm Killik & Co, said that Premium Bonds have been a popular staple among those who have used up their ISA allowances or people looking for short-term investment alternatives.
He said: “They offer two compelling features: a safe store of value, given that they are short-term debt backed by the UK Government, and the variable tax-free reward potential. Given this, it can make a great alternative to holding cash at the bank if you are not receiving a competitive interest rate from your bank, or if you are in excess of the financial services compensation scheme (FSCS) limit of £120,000 per banking institution.”
But he offered a word of warning that your success with Premium Bonds can fluctuate dramatically. He explained: “The rate offered should be taken with a pinch of salt and more reliable returns can be found in other investments, including other Government-backed debt such as short-dated low-coupon gilts.
“These also benefit from being largely tax-free on the basis of being exempt from capital gains tax under qualifying bond rules.” The expert also suggested that people looking to grow their savings over the long haul should consider investing.
5-year rule for savings
Mr Stevens explained: “Individuals should be considering investing in more growth focused options. If you do not need the cash for the next five years, then Premium Bonds or Government debt are unlikely to be the best asset class to be invested.”
Helen Morrissey, head of Retirement Analysis at savings and investments provider Hargreaves Lansdown, warned that people can sometimes have a sentimental connection to their Premium Bonds. She explained: “Premium Bonds hold a special place in people’s hearts and the potential to win big is a powerful incentive for people to use them.”
“However, given the extremely small chance you have of winning a life changing tax-free sum you should consider whether you can be making more from your money elsewhere. It’s well worth looking at the wider savings market to see what deals are available; you can still find competitive deals from online banks and saving platforms.”
She explained that a more dependable way to grow savings for a youngster would be through a Junior ISA. The specialist said: “Growth and income are tax free, like with Premium Bonds, but if you invest the money for five to 10 years or more they have real growth potential, and stand a much better chance of growing notably faster than inflation.”
Are Premium Bonds a good choice for for pensioners?
Older savers may ask if they should retain their Bonds as they approach retirement. Mr Stevens explained: “For those approaching retirement, there are more effective ways to store cash in the short-term, but Premium Bonds can form part of a larger investment portfolio.
“Once changes to the Cash ISA allowances come into force in April, people will likely seek out other tax-effective options such as Premium Bonds.” Ms Morrissey also suggested that older savers might want to diversify their savings holdings.
She explained: “Retirees will also need to think about how to make the most of their money over a long time period, taking into account inflation. With this in mind, they are likely to get better interest rates from their savings by looking across the market and investments will also play an important role in preserving purchasing power.
“Premium Bonds have the benefit of being fully backed by the Treasury so will be seen as a safe haven, though it’s worth saying the FSCS has recently increased its limit to £120,000 per person per institution.”
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