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Premium Bonds have long been a national favourite – a place to park your cash safely while dreaming of a £1 million win. As they celebrate their 70th birthday, it’s worth pausing to ask a simple question: is the thrill of a prize draw costing you money? Whether you already hold Premium Bonds or are weighing them up against a savings account, here’s how Premium Bonds really stack up against savings – and how to decide which home makes the most sense for your cash.
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Most people know that, instead of earning straightforward interest on your cash, with Premium Bonds you enter a monthly draw that could net £1 million. But when was the last time you checked on the odds of winning?
NS&I, the government-backed savings institution that offers Premium Bonds, says for every £1 Bond owned, there’s a 23,000 to one chance of winning a prize each month.
This equates to an annual prize fund rate of 3.3%, though this can vary (it reduced in April from 3.6%).
The NS&I changes the prize fund rate when the Bank of England base rate or the general savings market changes.
In spite of the recent rate drop, you might think an ‘average’ 3.3% return doesn’t sound too shabby compared to rates on many savings accounts – the best currently pay around 4%, but plenty pay much less than that.
But the prize fund rate isn’t directly comparable with other savings accounts’ interest rates. It means that for every £100 paid into bonds, on average £3.30 a year is paid out in prizes. But in reality, most people win less than this. That's because a few large prizes mean that for every person who wins six figures (or more), hundreds win nothing.
Essentially it comes down to probability and the size of investment, so the more Bonds you own, the better your odds will be.
Premium Bonds are celebrating their 70th birthday. The launch was announced by chancellor Harold Macmillan in his Budget speech in April 1956. Around 23 million Britons have Premium Bonds, with nearly £134.6 billion held in them. But nearly two-thirds (63%) have never won a prize – according to a recent Freedom of Information request from AJ Bell – which means many aren’t earning a penny on their investment.
According to AJ Bell’s data, between March 2024 and February 2025 there were 5.1 million prize winners, 80% of whom had netted multiple wins.
The average holding amongst those winners was a chunky £23,397 - far higher than the overall average holding, which currently stands at £5,406.
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Let’s take the ‘average saver’ who decides to pay £5,406 into an instant access savings accounts paying a competitive 4.11% AER. Across a year they’d earn a guaranteed £226.42.
For illustrative purposes, let's assume that if the rate remained the same for 10 years, they’d earn £2,742, taking their total investment to over £8,148.
If that money was invested in Premium Bonds, the ‘average saver’ could win £1 million, absolutely nothing, or something in between. If you win nothing, the effect of inflation will erode the spending power of your money over time.
Savings accounts provide more certainty, guaranteeing that you will at least earn something with your money. But there could be some occasions where an investment in Premium Bonds could work within your overall financial plan.
For example, if you have a large amount of money you need to hold for a short period of time – such as to pay for house renovations or a tax bill. With a larger sum deposited, you’ve got a greater chance of winning a prize or two, plus your money isn’t there long enough to lose much of its spending power.
Remembering inflation is important. While no savings account is guaranteed to always outpace inflation, a competitive rate of interest will offer some protection from your money losing value over time. If an investment in Premium Bonds wins nothing, then the spending power of the money invested diminishes.
For example, if someone invested £1,000 in Premium Bonds today, and won nothing for 10 years (assuming inflation of 3%), their money would only be ‘worth’ around £744 by 2036, due to the increased cost of goods and services.
That said, Sarah Pennells, consumer finance specialist at Royal London, points out Premium Bonds can be a practical place for savers with big bank balances to park some of their savings.
“Because prizes are tax-free, savers who have already used their full ISA allowance - especially higher or additional rate taxpayers - [could] consider Premium Bonds as a home for cash savings,” she explains.
“While you can’t get access to money in Premium Bonds instantly, you can get it paid into your bank account within three working days.”
It’s also important to consider the effect of tax on savings interest.
If someone had £50,000 to put into savings account at 4.11%, they’d get £2,094 in interest per year – but would have to pay £218.80 tax on it if they pay basic rate tax, £637.60 if they paid the higher rate or £942.30 if they pay the additional rate (with the personal savings allowance included).
For higher and additional rate taxpayers, the tax-free nature of Premium Bonds becomes more attractive – though the fact remains that they might not win anything. ISAs are also tax-free (though your allowance is capped at £20,000 a year, compared with an overall maximum of £50,000 that can be held in Premium Bonds).
For some, an investment in Premium Bonds might not always be the best choice for their money. But for fans, they can inject a bit of fun and excitement into their financial plans, which goes a long way in explaining their enduring appeal.
Sarah Coles, head of personal finance at AJ Bell, says: "I can understand why people are so keen on the chance of a life-changing win, after all it’s not like the lottery where you lose your stake.”
“I’ve used Premium Bonds myself in the past to pay a tax bill. However, I don’t think of myself as particularly lucky – the only thing I ever won was some talc from a tombola when I was eight – so these days I prefer to keep my money in savings accounts, where I know I’ll at least get interest.”
But with the opportunity to win big on the table, she acknowledges there will be no swaying some thrill seekers.
“My great-aunt inherited some money when she was in her 70s and when it was suggested she used the money to pay off her remaining mortgage with it, she point-blank refused. She said that she could afford the mortgage on her pension, and that investing in Premium Bonds might be her only chance of winning a fortune.”
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