National Savings & Investments’ (NS&I) courted controversy last week after failures to record customer details had left families unable to access the money of loved ones who had died. The total amount of trapped funds ran into the hundreds of millions.
However, it’s unlikely that NS&I will be too badly bruised by the episode, given the nation’s unwavering love affair with its most high-profile product: Premium Bonds. In fact, it’s likely this infatuation will only increase, thanks to the upcoming changes to the cash Isas.
From April next year, the cash Isa allowance will be cut from £20,000 to £12,000, except for those aged 65 or over. At the same time, savers will be hit by a 2 percentage point increase in the savings interest tax rate.
The saving interest allowance, the amount one can receive before taxes are paid, remains untouched, but this is of little comfort to higher-rate taxpayers, who can only receive £500 before the taxman comes calling, or additional-rate taxpayers pay tax on everything they earn.
As a result, it’s becoming increasingly difficult to hold cash in a tax-efficient manner. For many, the obvious solution will be NS&I’s most popular product.
Read our 2026 Isa Special Report
Premium Bonds are a peculiarly British institution. They allow you to save up to £50,000, and it’s relatively easy for you to access that money if you need to do so. As a bonus, you are entered into a monthly prize draw where you can win a maximum cash prize of £1mn (although most prizes are much smaller). Everything you receive is tax free.
But, as a savings vehicle, they have several drawbacks. To start, they do not offer a fixed rate of return. Instead, Premium Bonds have a variable annual prize fund rate, which is representative of the average payout. Seeing as 62 per cent of Premium Bond holders have never won a prize, this should not be taken as an indicative representation of the what you receive.
In February, the prize rate was cut from 3.6 per cent to 3.3 per cent while the odds of winning a prize were lengthened to 23,000 to 1. Not only are you, therefore, less likely to win a prize, but the prize rate itself now barely beats inflation, which is 3 per cent. This is particularly troubling given the inflaton expectations are rising, Ian Futcher, a financial adviser at Quilter, says. It’s much more likely you will find a better rate with a cash savings account.
Another consideration is timing. Those that do win tend to have to wait a long time to do so. On average, it takes a saver 3.1 years to win their first prize, according to figures obtained by Quilter. The odds of winning are also heavily skewed in favour of those with larger deposits. In 2025, prize winners on average held £39,500 in Premium Bonds.
Those with only a small Premium Bond holding are far less likely to win a prize. AJ Bell research shows that only 1 per cent of prizes awarded between February 2025 and January 2026 were won by account holders who held less than £1,000.
So, if you do have cash to spare, it’s worth thinking twice before defaulting to Premium Bonds; that loyalty might be misplaced. Sometimes it’s necessary to hold a significant amount of cash, but the rest of the time, it’s far better to invest.