In 2025 £5.8 billion was poured into Premium Bonds. But are they really the right home for your cash?
“Premium Bonds remain a star in the savings arena,” says Sarah Coles, head of personal finance at Hargreaves Lansdown. “People are incredibly attached to their Premium Bonds, but as we move into 2026, it’s well worth taking stock of whether they’re right for you.”
There are three key attractions.
The first is security – NS&I, which operates Premium Bonds, is backed by the Treasury so your money is 100 per cent safe. Then there’s the fact any prizes you win are tax-free, and finally the possibility that you could win the £1m jackpot.
So, who should stick with Premium Bonds and who should abandon them?
The big lure is the same as the problem: the prizes on offer.
“When people win a prize on their Premium Bonds they get more than just the money, they also feel a sense of getting something for nothing, which is a powerful incentive to stay put,” says Coles.
“However, you’re actually paying for the prizes yourself, because your cash doesn’t earn any interest. Given the fact that the average bond holder will win nothing in the average month, it means your savings are likely to lose money after inflation.”
After all, no interest is paid on Premium Bonds balances, so you only make a return if you win. Data from AJ Bell shows that almost two-thirds (63 per cent) of Premium Bonds holders have never won a prize.
“Those with small amounts in Premium Bonds are less likely to win,” says Laura Suter, director of personal finance at AJ Bell.
The firm found that the average holding for Premium Bond winners was £23,397, whereas the average holding for people who didn’t win was just £106.79.
“Put simply, if you’re one of the millions of people with a small amount of money in Premium Bonds, the odds are stacked against you,” says Suter.
If you haven’t already used your £20,000 ISA allowance, then shifting your money from Premium Bonds into a cash ISA will mean you earn a reliable tax-free return.
The average new Premium Bonds customer holds £10,674 according to data from Hargreaves Lansdown. At this level, some people will win, but many won’t. Against the context of average holding amongst winners being in excess of £23,000, it shows how much balance size affects the odds.
Even with average luck, Premium Bonds are not competitive. The prize fund rate is currently 3.6 per cent while top easy-access savings accounts pay around 4.5 per cent. On a £10,674 balance, that would return £480.33 over 12 months with no luck involved.